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Child Benefit High Income Charge: are you at risk of receiving an unexpected HMRC bill

Over the last few months, we’ve had a number of clients receive letters from HMRC demanding repayments for Child Benefit to which they weren’t apparently entitled. And if you look at some of the online parenting and money forums it seems they aren’t the only ones. Back in January 2013, the government introduced something called the Child Benefit High Income Charge. Basically, it means that if either you or your partner has an income of more than £50,000 a year before tax, you’ll have to pay back some (or all) of your Child Benefit in the form of extra Income Tax. At the time there was a lot of publicity about this new tax, but for anyone who wasn’t earning that much at the time or if you are recently a new parent, you may still be unaware of the charge and its implications.   We take a look at what it means and what your options are

How is the Child Benefit High Income Charge calculated?   

As soon as you or your partner earns more than £50,000, you will be required to pay back 1% of your family’s Child Benefit for every extra £100 you earn over £50,000. And if either of you earn more than £60,000, this charge is 100%, or in other words, you’ll have to pay back all of your Child Benefit as Income Tax. This handy  Child Benefit calculator will help you work out how much you may be liable to pay.

So, what happens if my salary is over £50,000?

You will still get paid the full amount of Child Benefit each month, but will then need to complete a self-assessment tax return so the amount of extra Income Tax you’ll have to pay can be calculated. If you aren’t already registered for self-assessment, we’ll be more than happy to sort that out for you.

What are my options if I’m affected by the Child Benefit High Income Charge?  

  1. Choose not to receive your Child Benefit payments. This means you won’t have to pay any additional tax or have to complete a self-assessment tax return; however, if your income is between £50k-£60k, you’ll end up out of pocket as you’ll also be giving up the proportion of Child Benefit you are entitled to. If you do choose not to get Child Benefit payments, make sure you still fill out the Child Benefit claim form. This will help you get National Insurance credits which count towards your State Pension.
  2. Continue to get Child Benefit: You will need to pay tax and complete a tax return. The amount of tax you pay will be based on your adjusted net income, which is basically your total taxable income (i.e.  basic salary, taxable benefits, rental income, investment income etc), minus things such as pension contributions. So, if you want to pay less tax, one way is to pay more money into your pension.

Need more help?

This is a complex area, especially if you’re a new parent trying to juggle a hundred and one things!  HMRC have a useful guide on what to do if your circumstances change or you want to stop or restart your Child Benefit. And we are also more than happy to help you get to grips with what you need to do and how you can reduce the amount of tax you have to pay.  Just give us a call or drop us an email.

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In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are

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