Understanding the High Income Child Benefit Charge

Research to explore barriers for compliance with the High Income Child Benefit Charge still shows lack of awareness of how the charge applies and is processed.

In 2019 HMRC commissioned research into the awareness, understanding and decision-making processes of the High Income Child Benefit Charge (HICBC) which was carried out by IFF Research.

Then in 2020 HMRC commissioned NatCen to conduct research to explore the barriers to compliance for the HICBC. This research comprised 48 in-depth interviews with taxpayers liable for the charge.

The HICBC was introduced in 2013 and whilst the majority of taxpayers either comply with the paying the charge or choose to opt out of payments, since its introduction, HMRC has identified several risks of non-compliance. This has mainly been due to a lack of awareness and understanding of the charge together with many individuals not necessarily being aware some of the benefits of claiming Child Benefit.

This report highlighted that the main barriers were:

• lack of awareness of the charge, sometimes several years into building up the charge;
• not accurately understanding important details of HICBC or Child Benefit, for example, the taxpayer’s responsibility to notify HMRC or that Child Benefit is paid every four weeks;
• not understanding the process of complying, completing self-assessments, paying through tax code adjustment or opting out; and
• having complex earnings in the form of composite or fluctuating incomes leading to errors in accurately paying the charge.

So again, similar to what we have seen before. However, those who participated in the research showed that while they were motivated to meet their responsibilities, they also identified areas for further support. This mainly was focused on raising awareness and improving taxpayer understanding of their liability and better communication from HMRC.

Given how long it has been since the introduction of the HICBC, it really is important for those claiming the benefit to fully understand their obligations as well as understand the benefits of claiming. In addition, clients ought to be aware that the HICBC is based on the client’s ‘adjusted net income’ so there are planning opportunities available to them to reduce their income and still claim the benefit.

Another risk not highlighted in the report is the impact opting out of the child benefit may have on State Pension eligibility, which you can read more about by clicking here to read our article, ‘Child benefits: Why you shouldn't opt out’.

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The information in this article is correct as of 23/06/2022.