The High Income Child Benefit Charge and yet 300,000 families have been uninformed of the changes!
The new High Income Child Benefit Charge (HICBC) applies for child benefits payments made after 7th January 2013.
Who is Caught?
The charge applies if during a tax year:
• you (or your partner) have an individual income of more than £50,000; and
• you (or your partner) receive child benefit.
You will also be affected if, during a tax year, you have an individual income of more than £50,000 and both of the following apply:
• someone else is entitled to receive Child Benefit for a child who lives with you; and
• they are entitled because they contribute at least an equivalent amount of Child Benefit towards the child’s upkeep, for example, pocket money or clothes.
For incomes between £50,000 and £60,000, the charge is gradually increased to 100 per cent of the child benefit. Generally, if your income falls into this category, you will be better off keeping the child benefit as the tax charge will be less than the amount of child benefit received.
Who is not Caught?
You are not caught by this charge if:
1. both you and your partner have an individual income below £50,000 for a tax year; and
2. neither you or your partner are entitled (or have been entitled) to receive Child Benefit.
If the HICBC applies to you, then you should have decided to either:
• keep receiving child benefit payments. If you have decided for this option, you will need to fill in a tax return each year, declaring the amount of child benefit for which you (or your partner) are entitled to receive; or
• stop receiving the child benefit payments. You should have informed the Child Benefit Office and you will not be liable for the new tax charge and you will not need to complete a tax return (unless you will need to for other reasons)
How the tax charge works
The amount of the tax charge will be based on the amount of child benefit entitlement and the level of what is referred to as ‘adjusted net income’. Broadly, the maximum amount is equal to the amount of the child benefit. For a tax adviser in London, Newshams can help take you through the changes and how you may be impacted.
Future Entitlement to Claim Child Benefit
Deciding to stop your child benefit payments will not affect your entitlement to child benefit. As long as you, or your partner, are entitled to receive it, HMRC and tax advisers recommend that you still fill in a child benefit claim form if you have not already done so.
This is because entitlement to Child Benefit:
• can help you qualify for national insurance credits that can protect your entitlement to State Pension;
• can help protect your entitlement to other benefits such as Guardian’s Allowance; and
• ensures your child is automatically issued with a National Insurance number before they turn 16 years of age.
Many Families Left Uninformed about the new Charge
HMRC has admitted that it has failed to contact about 300,000 families informing them of the changes to the child benefit payments.
HMRC previously stated that it would contact over 1 million people to alert them to the fact they will lose the right to claim child benefit from 7 January 2013, from when it becomes means-tested.
Apparently, 784,000 people have received letters from HMRC stating that they should either opt out of the system or will have to repay the HICBC through the tax system. However, this means that about 300,000 claimants have not been informed in writing about the changes and may be in for a shock.
If you want to speak to a tax adviser in London about the changes, contact Newshams Tax Advisers today on 020 7470 8820.