The benefit is clawed back at 1% of the amount received for every £100 of income above the threshold, so a claiming household containing someone with a taxable income of £55,000 would need to pay back half of the benefit to HMRC. HICBC is charged on the highest earner in the household and paid back via a Self Assessment tax return.
There are many criticisms of the benefit, the main one being that its design breaches the basic principles of independent taxation, forcing families to discuss each other’s income in order to work out who should pay the benefit back. It also forced many people into completing annual Self Assessment tax returns that otherwise would not need to.
Ten years on from its introduction we find ourselves in a period of high inflation which, on top of more ordinary wages growth over the last decade, will see more families caught by this charge as their income increases as the government has chosen not to increase the threshold at which the clawback begins. Many of these families are unaware of the charge’s existence.
The government relies on individuals to be aware of tax legislation, which is a perhaps unrealistic for a charge like this, so what can we do to alert people about the charge? Mostly, we are relying on word of mouth so that individuals can deal with the charge before HMRC discover it and hit them with interest and penalties.
Personal Tax clients need to be aware that you now even have to advise your contact at UHY if you have children under eighteen and whether you claim the benefit – not something that naturally seems relevant in calculating your tax bill.
Employers could perhaps warn their employees about this charge when they see remuneration (which includes P11d benefits) nudge towards or over the £50,000 mark.
The Chancellor made no changes to this legislation in his budget on 15 March. However, some newspapers have recently started to pick up on this issue, so perhaps pressure may be coming for him to increase the threshold in the near future.
However, as things stand, the trap is set.
The next step
Should you have any queries about the HICBC, please contact Jonathan Haggart on j.haggart@uhy-manchester.com or your usual UHY adviser.
