Thousands of parents are expected to receive letters from HMRC during November 2012 outlining changes to the way child benefit is claimed, including details of the new charge to claw back the benefit from higher earners.
Being introduced on 7 January 2013, this will impose the high income child benefit tax charge (HICBC) on equivalent to 1% of the benefit received for every £100 of income on those earning between £50,000 and £60,000.
Two parents who each earn £49,999 keep all of their child benefit, while someone earning more than that amount, but part of lower combined annual income household, will be subject to the charge.
HMRC will start writing to people who it believes will have income in excess of £50,000 in the current tax year and who may therefore be liable to pay the HICBC although it is not clear how they will have collated their data and this means that some people may receive the letters and not actually need to pay the HICBC; conversely, some people who have to pay it, might not get a letter. The letters will be sent to the people HMRC thinks might need to pay the charge rather than to the recipient of the child benefit payments which will trigger it.
It is understood that for sums below £3,000 the HICBC will be coded out in arrears for taxpayers under PAYE but everyone affected by the charge will go into self assessment, even if the charge is collected under PAYE. It's estimated that this will add another 500,000 self assessment taxpayers to the existing 10m.
The person with the higher income must ask for a self assessment tax return unless they already receive one. That means that couples will need to discuss their incomes (which it is generally accepted ought to be able to be kept private if they wish) in order to work out who must deal with the charge. It may frequently be the case that the person paying the charge is not the person receiving the child benefit.
The first tax return affected will be for the current year, 2012/13, and will only have to show a HICBC for CB received after 7 January 2013. It will be payable by 31 January 2014. Of course in future years when it will be based on a full year’s CB receipts, the charge will be much greater.
The charge can be avoided by a claim to opt out of receiving child benefit in the first place but note that any such claim must be made by the person who claims child benefit.
See the HMRC flowchart to help people work out what to do.
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HOT ISSUE: CHILD BENEFIT CLAW-