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Child Benefit Penalty for Higher Earners

Child Benefit_TaxAgility Accountants LondonIf you or your partner are a higher earner parent (classified as anyone earning in excess of £50’000 per annum) and have been receiving the child benefit this year – you could face a large Child Benefit Penalty if you do not register for Self Assessment by 5 October 2013.

Individuals who fail to register by this date may face a penalty of between 10% and 100% of the amount due, depending on if the failure was intentional.

What are the changes to the Child Benefit?

The Child Benefit is available to all parents and equates to £20.30 a week for the first child and a further £13.40 a week for each sibling.

Earlier this year, the HMRC made changes to the Child Benefit by introducing the High Income Child Benefit Charge (HICBC) as a way to claw back a portion or all of the benefit from individuals earning more than £50’000 per annum.

In order to calculate if your income is above the threshold, you need to calculate what your ‘adjusted net income’ figure is. This is your total taxable income before any personal allowances and after items such as Gift Aid. The GOV.uk website has a Child Benefit tax calculator which can assess your adjusted net income. Alternately, we would be happy to assist you to calculate this.

If your circumstances have recently changed and you are now considered a higher earner and have received Child Benefit in 2012/13, then you will need to complete a Self Assessment tax return and pay the High Income Child Benefit tax charge. For the 2012/13 tax year, the HICBC tax charge will only apply to Child Benefit received between 7 January and 5 April 2013.

How is the HICBC calculated?

The way the High Income Child Benefit Charge is calculated is a tax levied of 1% of the Child Benefit received for every £100 of your individual income over £50’000. If your net income is £60’000 or above, then this would equate to the full annual Child Benefit received. In this case, you could elect not to receive the Child Benefit, rather than having to pay the full portion back.

If you would like to calculate the exact amount that will be due, relative to your income, please visit the GOV.uk website which includes a ‘child benefit tax calculator’. Alternately, please feel free to contact us and we would be happy to discuss your options and avoid any Child Benefit penalty.

Who needs to pay the HICBC?

If you or your partner has an individual annual income over £50’000, you may be liable to pay the HICBC, if you meet one of the following conditions:

  • You or your partner have received the Child Benefit from 7 January 2013 to 5 April 2013
  • Someone else receives the Child Benefit for a child living with you (and the individual contributes an equal amount to upkeep)

Next steps:

If you meet the criteria detailed above for the High Income Child Benefit Charge, you need to register for self assessment by 5 October 2013 in order to avoid a penalty.

Alternately, you may stop the benefit by completing an online form available on the GOV.uk website or contacting the HMRC.

If you would like more information on the Child Benefit penalty, and for tailored advice for you and your family, please call us on 020 8780 2349.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

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