High Income Child Benefit Charge

Child benefit has once again been in the news, with HMRC estimating that up to 165,000 people liable to the new High Income Child Benefit charge failed to register for self assessment by the 5 October 2013 deadline and now face penalties.

To recap, all families who are in receipt of child benefit and where one parent has a taxable income in excess of £50,000 are liable to this charge.  If these families have not already opted out of receiving child benefit then the parent whose income exceeds £50,000, not necessarily the parent in receipt of the child benefit will have to repay some or all of the child benefit received since 7 January 2013. The repayment of child benefit is dealt with through the tax system and for that reason those people affected by this charge need to complete a tax return.

Taxable income is not only salary; you must also take account of any income received from investments such as savings and shares. Other types of taxable income include profits from a business or partnership and rental income, although people receiving these types of income should already be registered for self assessment and completing annual tax returns.

When considering if you will be liable to this charge you need to work out what is termed your adjusted net income. This means that you can deduct certain tax reliefs such as personal pension contributions or gift aid payments from your taxable income to arrive at your adjusted net income.

For example your total taxable income is £51,000 and during the year you make personal pension contributions of £1,500. Your adjusted net income is therefore £49,500 and as this is below the threshold of £50,000 you would not have to repay any child benefit received.

The rules for self assessment state that if a person knows that they are required to complete a tax return then they must register with HMRC no later than 6 months after the end of the tax year; this is why all those affected by this charge should have registered by 5 October 2013. This then allows HMRC sufficient time to register these individuals and issue them with a tax return. In reality it is expected that providing those people affected register and submit a tax return by 31 January 2014 then they are unlikely to receive a penalty.

For those people who take the chance not to register for self assessment so as not to pay the benefit charge in the hope that HMRC will never catch up with them may find themselves receiving a late notification penalty after 31 January 2014.

This has been a hotly debated and controversial charge and for this reason it is highly likely that HMRC will have procedures in place to identify anybody who may have to pay this charge but have not either opted out of receiving child benefit or have not registered for self assessment.

It is understood that HMRC has written to all those people that they believe have a taxable income in excess of £50,000 and may be affected. In addition, HMRC is able to identify those families who have been receiving child benefit and the level of their income, so all this information is readily available to them which in theory makes it relatively simple for them to target people who have deliberately failed to register.

The current penalty for failing to submit a tax return on time is £100. In addition to this, where somebody who has deliberately failed to notify HMRC that they are liable to the child benefit charge could find that they not only have to pay the charge but could also be hit with a penalty of up to 100% of the child benefit received. Considering the number of people HMRC has estimated to have missed the registration deadline then many families could find penalties notices dropping on their doormat.

Author Louise Johnson

If you would like to discuss in more detail anything raised in this article, or would like to have a chat about your own personal circumstances, please contact one of our specialist tax team at your local office – click here for details of our offices.

Technical content correct at time of publishing.