I wrote a blog post on child benefit a few months back but since that time there has been some important updates which I have included in this latest offering.
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.. HMRC will be producing a form in
the
coming months to enable this to happen. This form must be submitted to HMRC by 7 January 2013.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.
In summary there are 3 different scenarios:
1. If the partners both individually have income below £50,000, then the child benefit is not taxed at all
2. If either of them has income greater than £60,000, the income tax bill on the child benefit equals the benefit itself and must be declared on a self assessment tax return.
3. If either of them have income between \£50,000 and £60,000, he will have to pay income tax of 1% of the child benefit element in the fiscal year for every £100 of his income over £50,000
The income tax charge arises when the claimant of the child benefit is entitled to receive it and not when they actually receive it. The person who is liable to pay the income tax charge (father) is responsible for notifying HMRC of their chargeability. Employees who are entitled to child benefit with net income greater than £50,000 must notify HMRC to avoid penalties.
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 and offer you 25% off our usual service fee.
Thank you for reading my blog and please do not hesitate to get in touch I am happy to help
Mitch the Tax Man
mitch@ljd.uk.com
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