Reduced income due to COVID-19 and back-dated child benefit
3rd July 2020
Covid-19 is causing many people hardship and a reduction in their income. So, for many people the liability to the high income child benefit charge (HIBC) may change or be eliminated altogether. The HIBC applies where a child benefit claimant or their partner has adjusted net income of over £50,000 in a tax year. The HIBC is an additional tax which is paid by the partner with the higher adjusted net income. The amount of extra tax is equal to 1% of the child benefit received by them (or their partner) for each £100 above the £50,000. Once net income exceeds £60,000 in a tax year the HIBC is fully clawed back. Anyone with income at above this level may not have claimed child benefit or might have claimed it but opted out of receiving payments.
So subsequently when income falls it is important to determine which of these situations you are in.
For those of you that have not claimed Child benefit because you thought that you would just have to pay it back via the HICBC but now find yourself with reduced income you may now be in a position to claim backdated child benefit but only for three months. You will need to be careful as the HIBC may still apply if your adjusted net income is above £50,000.
However, if child benefit has been claimed throughout the 2019/20 tax year and the claimant has opted out of receiving it then it would be possible to reinstate the child benefit payments for up to the two previous tax years if there is a change of circumstances, compared with just the three months for a backdated claim as mentioned above. Claiming child benefit also means that the child is issued with a National Insurance number when they turn 16, rather than potentially having to attend an evidence of identity interview.
As a result of a reduction in adjusted net income to £50,000 or less for the year, liability to HIBC will cease. Those in this situation will need to claim child benefit if they have not claimed it previously or reinstate payments if they have previously opted out. If you are in this situation it may no longer be necessary to file a self-assessment tax return and HMRC will withdraw a tax return if it has been issued if the taxpayer no longer meets the self-assessment criteria.