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Basic rate taxpayers could face High Income Child Benefit Charge

Due to a mismatch of earnings thresholds, basic rate taxpayers may unexpectedly come under the scope of the High Income Child Benefit Charge in April.

The Low Incomes Tax Reform Group (LITRG) has issued a warning to families that they may be subject to a tax charge when claiming Child Benefit due to a discrepancy between two earnings thresholds used by the Government.

This is because the High Income Child Benefit Charge (HICBC), which begins to be levied where either parent earns £50,000 or more, will no longer align with the thresholds for higher rate taxpayers, which means those paying the lowest rate of tax may now face new charges.

The higher rate tax threshold continues to rise each year, and while it currently stands at £50,000, this figure will rise to £50,270 from 6 April 2021. 

The HICBC, however, has remained unchanged since 2013. Those found within the charge will see one per cent of the child benefit they receive effectively withdrawn via the charge for every £100 earned above £50,000. This means that those earning £60,000 or more lose all the benefit through tax.

The Low Incomes Tax Reform Group, part of the Chartered Institute of Taxation (CIOT), has said that the policy “no longer meet it’s original intent to only target higher rate taxpayers”.

It has suggested that the Government should compensate for inflation and rising wages by raising the £50,000 income threshold to at least £60,000. It also believes that the point at which Child Benefit is fully recovered should increase from £60,000 to £75,000.

LITRG believes that the structure of the charge encourages those liable for the tax charge not to claim Child Benefit, which may affect a claimant’s state pension record, as they potentially miss out on National Insurance credits. 

It may also mean that children of those who aren’t claiming may not automatically get a National Insurance number when they turn 16.

To find out more about the Child Benefit Charge and how it works in practice, read our guide below.

Click here to read our Child Benefit Charge guidance


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