Caught in the high income child benefit tax trap?

Parents and carers with income of more than £50,000 may face large backdated tax bills plus penalties if they have not been paying the High Income Child Benefit Charge (HICBC).

Anyone who is responsible for a child can claim child benefit of £20.70 a week for the first child and £13.70 for each further child. However, if your adjusted income is more than £50,000, and you or your partner has claimed child benefit, you will have to pay back 1% of the benefit for every £100 by which you have exceeded that limit. You will have to repay all of the child benefit if the adjusted net income is over £60,000.

To pay the HICBC you need to complete a self-assessment tax return. Anyone who has not already done so must register for self-assessment by 5 October following the tax year in which the charge first arises. There is a particular problem for some people whose income has increased above £50,000, but have not realised that the onus is on them to complete the tax return and pay the tax.

When they eventually register, or HMRC catches up with them, these people are faced with a back payment from the date their income first exceeded £50,000 plus penalties for the late declaration. The penalty may be withdrawn where the taxpayer has a ‘reasonable excuse’ for the failure, but there will still be a tax charge which could amount to several thousand pounds.

One way to avoid liability to HICBC is for neither parent to claim the child benefit, but doing that may result in a loss of state pension rights. If a parent is off work and not paying national insurance contributions, they receive credits towards the state pension by claiming child benefit for a child under 12.

If the working parent earns more than £60,000, so that the whole of the child benefit would have to be repaid, a non-working parent could make a claim to obtain the NIC credits, but opt not to receive the benefit payments.

If you think you could be affected, please get in touch.

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 15 April 2019.

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