Child Benefit - The new Income Tax Charge

I recently went on a brilliant tax update course with my favourite tax speaker Tim Palmer taking it. He shared some very interesting stories about the latest tax investigations but he also brought us up to date with the latest tax position on child benefit, which I thought I would share with all of you as it is very interesting and probably some of you reading this will be affected.

Firstly legislation has been introduced to impose a new tax liability on a taxpayer who has income greater than £50,000, where they receive child benefit. It is important to note this is not the collective income with your partner and if your income is less than £50,000 and so is your partners, then the child benefit is not taxable. This new legislation comes into effect from 7th January 2013.

The £50,000 is 'net taxable income' i.e. after gross pension contributions but before personal allowances. For the current year (2012/13) taxpayers will pay income tax on the period 7 Jan 2013 - 5th April 2013.

Therefore if your income is between £50,000 - £60,000 you will have to pay income tax of 1% on the amount of child benefit you receive in the year, for every £100 of your income that exceeds 50k. If your income exceeds 60k however you will pay an income tax bill that actually equals the child benefit! For example if you have income of £60,000 and your partner received child benefit for 2 children of £1,752 for the year, the income tax will equal £1,752 which is the full amount received anyway giving a nil effect.

Individuals who earn above £50,000 per annum and receive child benefit will now need to register for self assessment with HMRC or face penalties in the future!

This will force thousands of individuals into a self assessment regime. Furthermore HMRC guidance states that you have to declare the amount you are entitled to and not received as the figure to go onto the retune.

If you do earn above 60k you can if you wish elect to not claim child benefit by disclaiming it permanently. HMRC will be producing a form in the coming months to enable this to happen. However my opinion is that the majority of individuals will still keep it as their partners have used the income for their children and more importantly for the 'stay at home mums' will lose the Home Responsibility Protection which will mean they may lose the qualifying years for their state pension, meaning their state pension will be lower.

I do not agree with the government on this and feel it is unfair and also to bring this into the self assessment tax regime is unnecessary and I can predict a lot of complications in the future.

As stated above this will no doubt affect a lot of you reading this as you will now need to complete tax returns and register with HMRC - Please contact me for a free initial chat and I will happily advise you

Thank you for reading my blog and please like or share with your contacts

Mitch the Tax Man

mitch@ljd.uk.com