ACCA TX UK Syllabus B. Income Tax And Nic Liabilities - Child benefit tax charge - Notes 5 / 6
Child benefit charge
The child benefit is a monetary benefit that the UK government provides to individuals with children, regardless of their financial standing.
The child benefit charge is designed to claw back the benefit from individuals with high income
If an individual who claims child benefit has an adjusted net income in excess of £60,000, an income tax charge arises.
The charge is levied at the rate of 1% of the amount of the child benefit received for every £200 of income above £60,000.
Therefore, if the adjusted net income exceeds £80,000, then the charge is equal to the full amount of the child benefit received.
Thus, if an individual expects their adjusted net income to exceed £80,000, they can choose instead not to claim child benefit.
The tax charge will be collected through the self-assessment system along with the income tax payable.
How to calculate adjusted net income?
Adjusted net income = Net income – Gross personal pension contributions - Gross gift aid contributions
Illustration:
Vineeta earns £80,000. She receives £1,000 of child benefit.
How much of the benefit will be clawed back by the government?
Solution:
Income above £60,000:
= £80,000 - £60,000 = £20,000
For every £200 above £60,000, 1% of the benefit will be returned:
£20,000 / £200 = 100% of the benefit will be returned
Benefit returned:
100% * £1,000 = £1,000
Therefore, Vineeta can choose instead not to claim child benefit.
How is the benefit returned to the government?
The benefit that needs to be returned to the government is added to the income tax liability of the taxpayer.