HMRC have recently issued an estimated 30,000 letters to higher rate taxpayers it suspects of not having repaid their Child Benefit. The letters appear to have been written to those individuals who said they had received child benefit and earned over £50,000 in 2012/13, but who did not themselves actually pay the high income child benefit charge (HICBC). However, this disclosure may well have been correct because it appears in many cases at least, that the individual’s spouse or partner earned the greater amount and had actually paid the HICBC which is being chased now. The letters have the words “You need to act now!” stamped in red across the front, thus causing a degree of anxiety to the recipients.
The Basis of the Charge
Historically, Child Benefit was paid to all families with a child under the age of 16 or under 20 in full time education, regardless of income levels. This changed on 7 January 2013.
From this date higher income families should have either:
- Paid the Child Benefit back to HMRC in the form of an additional tax charge, the HICBC, if either partner had net income of £50,000 or more or
- Opted out of receiving the Child Benefit
This approach by the government has been very controversial as one partner earning say £60k would lead to no child benefit being available, whereas two partners each earning £49k would mean full benefit could still be claimed. There is a phased reduction of benefit if one partner earns between £50k and £60k.
A taxpayer who received the Child Benefit and whose income exceeded the above limit should have made the relevant declaration on their 2013 Self-Assessment Tax Return. Any HICBC due should have been paid directly to HMRC by 31 January 2014 or employees had the option of asking HMRC to collect the tax through a restriction in their PAYE Coding Notice.
The letters that have been issued invite the taxpayer to amend their Tax Return to include the HICBC, which as stated above may in fact not be necessary.
Assistance with HMRC communications or HICBC planning
At Burgis & Bullock we have specialists who can help with this or any other communication you may receive from HMRC about which you are unsure. We can advise you on the implications of such letters and what steps should be taken and, if necessary, deal with HMRC on your behalf.
The HICBC is a complex area. Would you be better opting out of the benefit instead? Well it depends, as opting out of Child Benefit could affect your National Insurance record which could affect any future State Benefits you wish to claim.
Alternatively, could you reduce the HICBC? There are potential ways of doing so, particularly for those with a pension or employees with the possibility of flexible benefits or for a husband and wife holding income earning assets.
If you would like any advice in connection with the HICBC, then one of our tax team at Burgis and Bullock would be more than happy to meet and discuss your tax affairs.