Child Benefit is paid upon a claim to the parent or carer of a child up to the age of 16, or 20 if in approved education or training.
The HICBC, introduced in January 2013, remains a prime example of how not to design and operate a tax. As a reminder, the aim of HICBC is to make any Child Benefit recipient repay some or all of their Child Benefit back (as tax) if they or their partner has an individual adjusted net income exceeding £50,000 per year. The repayment is at the rate of 1% of total benefit paid for each £100 of income above the threshold, up to £60,000, at which point the tax charge matches the total benefit.
The Low Incomes Tax Reform Group (LITRG) has published a warning to separated couples following a recent First-tier Tribunal decision (Meades v HMRC) that a parent was liable for the HICBC, despite the fact that the benefit was paid to their former partner. In this case, Mr Meades had separated from his ex-wife in 2017. He was found liable for a £1,076 HICBC for the 2019/20 tax year even though the Child Benefit payments were made to his ex-wife, because he was the Child Benefit claimant, and, in that tax year, his adjusted net income was higher than £50,000.
The LITRG has also been contacted by others in a similar position and has published information on what claimants can do if faced with this situation.
Child Benefit is always claimed by an individual, not a couple. The claimant is the person who completes and signs the form to make the claim, even if they choose for their partner to receive the benefit payments. As some years may have passed between the original Child Benefit claim being made and the separation, it’s possible that people may have forgotten who the claimant originally was and assume it is the person getting the payments.
If a couple separates, the claimant could become liable for the HICBC if their adjusted net income later exceeds the £50,000 threshold, even if the payments are paid into their former partner’s account. It is also possible that any new partner of the claimant might become liable to the HICBC if they exceed the threshold and are the higher earner, even if they had nothing to do with the original claim. This is because the way the charge is worked out initially looks at the adjusted net income of the person who made the claim and any partner they have. (A ‘partner’ for HICBC purposes means a spouse or civil partner (unless separated), or someone with whom the person is living together as if married or in a civil partnership).
The LITRG is urging child benefit claimants to review their Child Benefit arrangements if they have separated from the partner they had when the claim was originally made. In doing this, claimants should check that these arrangements continue to be appropriate to their circumstances and to avoid being unwittingly exposed to the HICBC.
Some separated couples may decide they want the person who made the original claim to continue doing so, even if the Child Benefit payments are being paid to the other parent or carer (for example, a claimant who is not receiving the payments themselves may require the National Insurance credits awarded with a Child Benefit claim for their own State Pension), while others may seek a new arrangement – particularly in cases where the HICBC would otherwise be payable by the claimant.
The LITRG says that it understands that it is not possible to retrospectively change the name of the person claiming Child Benefit to avoid the HICBC, but it is possible to end the claim for Child Benefit and for the former partner to make a new claim. However, this could mean that the former partner (or any new partner they may have) may be liable to the HICBC themselves if they earn above the HICBC threshold.
If taxpayers are found to be liable for the HICBC, but have failed to notify HMRC, they may be charged penalties – although, if they have a reasonable excuse for the failure then the penalties can be appealed.
Claiming child benefit can also impact a person’s entitlement to a State Pension, as it attracts National Insurance credits. While these can be transferred to the other parent or carer, deadlines and conditions apply.
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