Many parents are unsure whether to claim, writes Brendan Kelly
Child Benefit had always been amongst the “tax free” benefits that were considered untouchable. In reality though, and in an age of austerity, it was an easy target. Why should the wealthy receive such a benefit when they don’t really need it? became the cry.
Even so, it was still a controversial move when, on 7 January 2013, HMRC actually introduced a tax charge on parents claiming Child Benefit.
It was also controversial as they chose to target a specific income level, being £50,000 and up.
This is where things started to get interesting. How did you define wealthy? For HMRC, clearly, the starting point was £50,000. If either you or your partner had income in excess of £50,000 in the tax year in question, you would have choices to make.
If your income was between £50,000 and £60,000, you would inevitably fall into the self-assessment system and have to complete a tax return each year and your Child Benefit would create a tax charge of 1 per cent for every £100 over the £50,000. If your income then exceeded £60,000, you would have a charge equal to, but not more than, the full Child Benefit claimed.
There was a mass reaction, with many stopping claiming the benefit; even so, many parents continued to claim, and perhaps many of them are still unclear on whether or not this is the best thing to do.
It would also be worth remembering that the HMRC database was not 100 per cent accurate at the time and it is the taxpayer’s responsibility to inform HMRC if they think that they will be affected by the charge. If you do not, you could be liable to a tax charge, interest and possibly penalties.
We are now more than two years on and have seen how this has affected different people.
The couple with a joint income of almost £100,000: If you and your partner each earn just under £50,000, you will not be caught by this charge and you will retain the Child Benefit in full; that is an overall income between you both of almost £100,000 and you would retain the Child Benefit.
The widow or single parent with income in excess of £50,000: If you are a widow or a single parent with children, and income in excess of £50,000, then you fall into the trap, no matter how unfair that seems; take the case of a widow with her own part-time income, a pension from her late husband and the widowed parent’s allowance, together totalling more than £50,000, then she is caught by the new rules.
Let’s say she has four children and her income breaches the £60,000, she will lose £3,146. If she continues to claim the benefit she will have to prepare a tax return each year and budget for losing the benefit. A single parent is caught in exactly the same way.
The question was how to deal with this issue? Do you simply continue to claim, complete a tax return and pay back the following year, or have an adjustment made to your allowances to pay the amount due over a 12 month period, thereby cancelling one another out? Or do you stop claiming and avoid the possibility of a tax return each year?
This is a dilemma indeed, as tax returns can be complicated at times to complete and to check that your tax assessment is correct.
For those who stop claiming and, importantly, do not claim for future children as they are not entitled to Child Benefit, there is a further issue; they need to register for Child Benefit in order to receive National Insurance credits for children under 12 years of age, and to ensure that the child receives their National Insurance number just before they turn 16!
You wouldn’t want your child to be “under the radar” just when they may be looking for some summer holiday income. So, it is vital to make the initial claim for child benefit.
You can go to the HMRC website to elect not to receive Child Benefit, and also restart the claim if your income should drop below the limit in the future; however be aware that the time limit for restarting is two years after the end of the tax year in which the payments would have been due.
• Brendan Kelly is a tax manager with Gillespie Macandrew www.gillespiemacandrew.co.uk