The charge is imposed on the higher earner, regardless of whether it is the higher earner or their Partner who has received the child benefit. 'Partner' includes spouse, civil partner and those living together as husband and wife or as if they were civil partners.
How is the charge calculated?
The income tax charge is calculated as 1% of the child benefit received for every £100 of income earned over £50,000. Therefore where income exceeds £60,000, the child benefit is clawed back in full.
For example, an individual with income of £52,000 will suffer an income tax charge equivalent to 20% of the child benefit received (£52,000 - £50,000 / 100 = 20%).
The charge is payable through Self Assessment. Consequently, if an individual is liable to pay the charge, they will need to complete a tax return, even if they would not normally be required to do so.
What action is needed?
The action required will depend upon each household's circumstances. It will be up to each household to decide whether to continue claiming child benefit, perhaps with the knowledge that it will be clawed back by way of the charge at a later date.
In the majority of cases, it is recommended that even if no child benefit is to be claimed, a nil claim for child benefit is still submitted. This is to protect National Insurance credits which, in some circumstances, could help protect a future entitlement to the State Pension.
In the situation where a household submits an election not to receive child benefit (on the assumption that the income tax charge would apply in full) but the household's income is subsequently found to be lower than expected, the election not to receive child benefit for that year can be revoked, providing the revocation is made within two years from the end of the tax year in which the original election was made.
Further consideration may be needed in situations where the child is not living with the recipient of the child benefit or where the parents or guardians have separated.
If you have any questions or wish to discuss this in more detail, please contact your usual Crowe Clark Whitehill contact or: