HIGH INCOME CHILD BENEFIT CHARGE LEADS TO TAX DEDUCTIONS

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HIGH INCOME CHILD BENEFIT CHARGE LEADS TO TAX DEDUCTIONS

As a result of the online self-assessment filing deadline it appears that many individuals have been caught by the High Income Child Benefit Charge (HIBC) – can anything be done about this?

What action should those affected take now?

The HICBC was introduced on 7 January 2013 – meaning the 2012/13 tax year is the first year where individuals are affected by this new charge.

Parents effectively had the option of ‘opting-out’ from receiving Child Benefit to avoid being subject to the new charge or continue to receive it and be charged accordingly. While many parents made the decision to opt-out, a large number have continued to receive it and as a result have repaid the money as extra tax via the self-assessment system, according to HMRC.

The charge is calculated based on the taxpayer or taxpayers partner’s income which is between £50,000 and £60,000 – the amount of the charge will be a 1% deduction of the amount of Child Benefit for every £100 of income which exceeds £50,000. Therefore, the whole amount will be subject to the charge where income exceeds £60,000 i.e. £60,000 – £50,000 = £10,000/100 = 100%.

The total benefit is calculated based on the weekly amounts received up to the end of the tax year – 2012/2013.

From 7 January 2013, for those with two children this is as follows:

£
£20.30 x 13 weeks 263.90
£13.40 x 13 weeks 174.20
Total 438.10

For the current tax year, for those with two children this is as follows:

£
£20.30 x 52 weeks 1055.60
£13.40 x 52 weeks 696.80
Total 1752.40

So, families with two children, where one partner had income in excess of £60,000 would be required to repay £438 for the three month period in which the charge applies. Those same families will owe £1752 for the current tax year. However, unless parents ticked a box during the self-assessment process the default position is to start collecting money immediately from pay packets by providing the employer with a new tax code. HMRC has said that this should not result in payroll departments handing over the full amount of £1752 – the money should be clawed back more slowly. However, it appears that confusion has arisen due to taxpayers receiving coding notices which suggest that a large adjustment would be made in this year’s personal allowance. As a result, it is vital that clients coding notices are accurate and should be checked to ensure the correct code has been applied.

Further for those whose total income is in the £50,000- £60,000 bracket, they could consider viable planning options to reduce their adjusted net income and avoid the HICBC. For example, by making gross pension contributions or gross gift aid payments depending on their individual circumstances – thereby providing an opportunity to negate the charge entirely.