High Income Child Benefit Tax Charge

On 7th January 2013 Child Benefit  became yet another means-tested benefit in an effort to save the Treasury an estimated £1.5 billion in the next year. If you or your partner have an annual income (including rental income, benefits in kind, dividends, and interest) exceeding £50,000 then you will be affected and it will cost you.

The tax charge will be 1% of the total child benefit received for every £100 of income over £50,000 and will be applied to the higher earner, irrespective of whether or not they are the person to whom the benefit is paid. For anyone earning over £60,000 the whole amount received will be repayable, and they should seriously consider ‘opting-out’.

If you earn more than £50,000 and receive child benefit you will need to complete a self assessment tax return each year.  If you already are required to complete a self assessment tax return then it is a simply a case of a couple of additional entries. However, if you are currently not in self assessment then you need to register with H M Revenue & Customs – failure to do so may result in penalties.

You can opt in or opt out of receiving child benefit at any time so it is worth checking regularly whether or not it is beneficial to do so. For example if you earn more than £60,000 and are not normally required to complete a self assessment tax return then the sensible option would be to opt out since the whole of the benefit received would ultimately be repayable. Additionally, those earning slightly below £60,000 may still prefer to opt-out as they may not consider the cost and inconvenience of completing a self assessment tax return is worth the financial benefit.

The HM Revenue & Customs website has further guidance on the matter at http://www.hmrc.gov.uk/childbenefitcharge/index.htm

If you are subject to the High Income Child Benefit charge then there are various options of how to pay – you can have a lump sum payment through self assessment payable on 31st January following the end of the tax year, or you can have it taken via your PAYE tax code. Either way you still need to complete a Self Assessment tax return, which involves collating information from various sources (P60s, interest certificates, dividend vouchers). All of this could prove daunting to someone who has never needed to complete a return previously. DEB Chartered Accountants would be happy to shoulder this administrative burden for you. We can also review whether or not it is beneficial for you to opt out of receiving the Child Benefit, and also discuss with you the options available for mitigating the effects of the tax charge. Please do not hesitate to contact us to see how we can be of assistance.