Should you consider PAYE collection for HICBC?

Introduction

Our client is an individual who earns £90,000 per annum and whose spouse is in receipt of child benefit for their three children. As they are the higher earner of the two, they have been paying the high income child benefit charge (HICBC) through their self-assessment tax return each year, but of late they have been considering whether their spouse should cease claiming the benefit altogether so that they no longer incur the charge. The Spring Statement confirmed that from summer 2025, the HICBC can be collected via PAYE through an employer’s payroll. Should our client’s spouse continue claiming child benefit despite the hassle of incurring the charge each year? Are there any benefits to paying the charge through self-assessment, or now via the new PAYE method?

HICBC recap

Child benefit is a non-means tested benefit which is paid to an individual who is responsible for a child under the age of 16 (or under the age of 20 provided the child remains in approved education). The benefit for the 2025/26 tax year is paid at £26.05 for the oldest child, and £17.25 for each child thereafter.

While child benefit itself is non-means tested, it will be clawed back if a member of the same household of the claimant is a high earner. Following the 2024 Spring Budget, from April 2024 a high earner is somebody who has adjusted net income of over £60,000.

For every £200 of income over £60,000, 1% of the child benefit is clawed back, i.e. full clawback occurs when adjusted net income exceeds £80,000.. The clawback is achieved via a tax charge on the household’s highest earner, rather than a reduction in the amount of child benefit actually received by the claimant.

Adjusted net income

Adjusted net income is not simply a person’s total income - it is a four-step process set out in s.58 Income Tax Act 2007 . The first step is to ascertain a person’s “net income”. This is broadly a person’s taxable income less any of the reliefs listed in s.24, e.g. trade loss relief.

Certain payments to trade unions and police organisations are reliefs under s.24 , but these are added back at step 4.

From net income, gross gift aid donations (step 2) and gross pensions contributions where relief is given at source (step 3) are deducted. Finally, any payments made to trade unions or police organisations that were deducted in calculating net income, are added back (step 4).

The sum of steps 1-4 produce adjusted net income. Let’s now take a look at an example for our client of the HICBC for 2025/26, assuming that they make annual gift aid donations of £1,000 and net pension contributions under relief at source of £5,000.

Example. Our client’s “net income” will simply be the £90,000 of employment income as there are no tax reliefs under s.24 that our client can deduct. As the gift aid donation and pension contribution are made net of basic rate, they need grossing up accordingly. These therefore become £1,250 and £6,250 respectively.

Our client’s adjusted net income will therefore be £82,500 (£90,000 less £1,250 less £6,250). As this exceeds the £60,000 HICBC threshold a clawback will occur, in this case a full clawback as adjusted net income just exceeds the higher threshold of £80,000. As our client has three children, the amount of child benefit received by their spouse for the 2025/26 tax year will be £3,148.60 and all of this will be clawed back via a tax charge on our client, payable via self-assessment (unless they elect for the new PAYE method). What has been announced about the PAYE method?

PAYE collection

Since the summer, eligible employees earning over £60,000 and subject to the HICBC will be able to report their family’s child benefit payments through a new HMRC online service and pay the charge directly via PAYE through their employer’s payroll. Employees will be able to check their eligibility for the new service later this summer.

Providing an employee has no other additional income outside of their PAYE income, collection of the HICBC will mean they no longer need to file a self-assessment return. But is paying the HICBC through PAYE or self-assessment better than not claiming child benefit altogether?

Options for claiming

As our client has a HICBC clawback equal to the full amount of child benefit received, they broadly have three options.

1. Don’t claim child benefit at all so as to avoid the charge.
2. Claim child benefit but elect not to receive the cash.
3. Claim, receive the cash, and pay the charge.

Our client has been considering option 1 due to the hassle of paying the charge, but this is not advisable as claiming child benefit gives our client’s spouse (as claimant) a qualifying year of NI credit which counts towards their state pension.

Option 2 would be better for our client as their spouse would get their NI credit whilst our client would not have to pay the charge (as no cash has been received), but they would miss out on the opportunity to utilise the cash. Option 3 may therefore be best as our client could invest the cash, generate a return on the investment, and then pay back the charge whilst keeping the profit generated.

Example. Our client’s annual child benefit is £3,148.60 which would be received in 13 x 4 weekly payments of £242.20 starting in April. These payments could be paid into an ISA each month and earn tax-free interest, before the £3,148,60 is withdrawn after the end of the tax year to pay the charge, leaving the interest generated.

Option 3 can therefore provide a timing benefit when paying the charge via self-assessment, as the first monthly payment is received in April 2025, whereas the charge does not need to be paid until 31 January 2027. This is effectively an interest-free loan for up to 21 months from the first payment received.

Therefore, claiming child benefit and receiving the cash would appear to be a better option than not claiming child benefit at all. If the new PAYE collection process is to collect the current tax year’s anticipated HICBC, so that the charge is collected in the same month as the benefit is received, paying the charge via self-assessment may be the better option of the two.

Specified adult childcare credits

A further benefit of our client’s spouse claiming child benefit is the ability to donate the NI credit they receive. Where a person has a full qualifying year of NI contributions under Class 1 (through employment), and also receives an NI credit due to claiming child benefit, they can give away the child benefit NI credit to a family member under the specified adult childcare credits scheme.

The scheme allows the claimant of child benefit to donate their surplus NI credit to a family member under state pension age, who has helped look after their children, e.g. a grandparent. This can be extremely useful where the grandparent has gaps in their NI record, as receiving the donated credit plugs that gap without the grandparent having to pay Class 3 voluntary contributions, which are currently £17.75 per week.