Child Benefit Tax Charge – Do you need to complete a tax return?

HMRC is to start a campaign in order to raise awareness of the ‘High Income Child Benefit Charge (HICBC)’.  It is estimated that around 500,000 taxpayers may need to complete a self assessment (SA) tax return for the first time in order to declare that they have a HICBC.

Whether you are in agreement or not, HMRC has been asked to administer the collection of the HICBC and in doing so, has put thousands more people into SA.  What is all the fuss about?  Parents on higher incomes who have continued to receive child benefit after 7 January 2013 will need to ensure that they register for SA by no later than 5 October 2013 to avoid any penalties for ‘failure to notify chargeability to tax’.  Therein lies the problem – have people been adequately informed of their responsibilities to approach HMRC and register for SA?  Will penalties be imposed on those individuals with no interest in the tax system or will people just ‘get away with it’?  More interestingly, are HMRC easily able to identify them?  The latest campaign to raise awareness suggests not.

Another fundamental issue which has caused debate is HMRC’s approach to prompt individuals with “income over £50,000” to register for SA, yet it is an individual’s “adjusted net income” which is taken into account when determining whether the HICBC applies.  It is not clear whether an individual with income in excess of £50,000 before adjustments has an obligation to contact HMRC, even if no HICBC charge will apply (for example, where personal pension contributions reduce adjusted net income below the £50,000 income threshold).  This needs clarification from HMRC.

In summary, the HICBC applies to child benefit payments received from 7 January 2013.  Those who have applied to stop receiving child benefit before 7 January 2013 are not required to take any action.  As per HMRC guidance, a person is liable to pay the child benefit tax charge if all of the following conditions apply:

·         their income is over £50,000 a year, and

·         either they or their partner received child benefit payments after 7 January 2013, and

·         their income for the tax year is higher than their partners.  The partner with the higher income is liable to pay the charge if both partners have income over £50,000

If you wish to discuss the issues raised in this article, please feel free to contact Simon at simon.boxall@wardwilliams.co.uk