Child Benfit - Don't leave it too late to notify

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

PAYE Changes - Real Time Information - Make sure you are ready !

I have found some very useful guidance from HMRC that should help you understand what Real Time Information is and how it will effect the way you and your Company operate PAYE.

What is Real Time Information
From April 2013 there will be a new way to report PAYE in real time,  Real Time Information (RTI).
Under the present PAYE system, employers tell HMRC what deductions they have made from employees’ pay at the end of the year.
Over time reporting PAYE in real time will help improve accuracy for some individuals by improving processes relating to starterrs and leavers.
It will also provide accurate records on wages and tax for the forthcoming Universal Credit, so eligible employees will get the right amount of benefits or tax credits every month.

What is changing?
PAYE itself will not change – just the way, and how often, employers send PAYE details to HMRC.
Instead of sending all PAYE details to HMRC in one go, at the end of the year, from April 2013 employers will have to:
send details every time a payment is made
use payroll software to send the details electronically
send the details as part of your normal payroll process.

How will RTI benefit employers and pension providers?
By getting rid of employer annual returns and streamlining the starter and leaver processes, RTI will remove admin burdens from businesses of around £300m each year.

What is the timetable for introducing RTI? 
RTI is being introduced progressively to give plenty of time for testing the new systems. We began piloting RTI in April 2012, with around 310 volunteer employers.  The pilot is going well and is on track.
Most employers will begin reporting PAYE in real time in April 2013, with all doing so by October 2013.  

Next steps
Businesses of all sizes should start preparing for RTI now by talking to their payroll software provider or payroll service provider about how they are developing appropriate payroll software. It’s also vital that employers check that information about their employees is accurate and up to date. This involves making sure that surname, forename, gender, address, date of birth and National Insurance Number (NINO) are correct and in the right format. Employers should also make sure that they add staff to their payrolls who will now need to be included with their RTI submissions, for example, those under the Lower Earnings Limit (LEL). For more help and advice on improving data quality go to www.hmrc.gov.uk/rti/dip/index.htm
For further information about RTI go to: www.hmrc.gov.uk/rti

If you need any further help or have any additional queries please do not hesitate to contact me mitch@ljd.uk.com

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Yours in Tax


Mitch the Tax Man