Child Benefit tax chaos – your guide

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CHILD BENEFIT – SPECIAL OFFER: For a special flat fee of £149 (including VAT) we will register you with HMRC and complete the 2012/13 Tax Return for you.  We cannot guarantee meeting the 31 Jan 2014 deadline after 10 Jan 2014.  This special offer only applies if Child Benefit is the ONLY reason you need to submit a Self Assessment Return. Call 028 9080 6080 or email mail@huston.co.uk 

Child Benefit Chaos – a guide

Child Benefit has changed for over a million people.

As of 6 October 2013 some 165,000 people had missed an important deadline to tell HMRC they were affected by the new rules.  Are you one?

Did you cancel your Child Benefit by 6 January 2013? If you still got child benefit after 6 January 2013, have you filed your 2012/13 Tax Return?

How do you sort this mess out?  Read on…

Does this affect me?

  1. Did you or your other half get child benefit after 6 January 2013? YES / NO
  2. Does one of you earn over £50,000 in taxable income per year? YES / NO
  3. Are both parties UK resident for tax purposes?  YES / NO

If you answer YES to all three then 5 October 2013 was an important date.

VIDEO on this – http://youtu.be/D3R694xhu98

Non-residents escape the charge!

If the only party with income over £50,000 is non-resident for tax purposes – as many of our clients are – there is NO obligation to register for Self Assessment or to repay any of the Child Benefit.  We have had this specific point confirmed January 2014 by HMRC.

What needed done by 6 January 2013?

If, due to one of you earning over £50,000, you are affected you should have done one of the following:

  • Cancelled the Child Benefit claim to stop the new rules making life complicated, or
  • Decided that you, the higher earner, will complete a Tax Return each year that the household gets Child Benefit. This means you must have noted that the onus is on you to register with HMRC so they know to send you a Tax Return in April 2013.

If one of you earns over £50K and you DIDN’T cancel the Child Benefit by 6 January 2013 then, unfortunately, the high earner MUST complete a 2012/13 Tax Return.  This applies even if you cancelled the benefit in mid-January, ie. just a week or two late.  Though at least by doing so there would be less Child Benefit clawed back.

What needed done by 5 October 2013?

If you are the higher earner, earned over £50K in 2012/13 and the houshold got child benefit after 6 January 2013 then you need to file a Tax Return.  Unless you already file one every year you need to register with HMRC.  This should have been done by 5 October 2013.  There is the chance of penalties for late registration, so don’t sit on your hands any longer – don’t make the situation worse.

If you have a UTR (Unique Taxpayer Reference) from filing a Tax Return anytime since 1996, then it’s not too late.  You can still file a Tax Return using that.  However it must be filed online.  Your choise there is to pay an accountant to file online (they have all the right codes) or to enrol for online filing.  This is not a quick process, as you need to be posted an ‘activation code’.

So, in simple terms, what’s this all about?

To reduce government spending (by some £2 Billion) the Chancellor has decided better-off families should not have the advantage of Child Benefit.  To achieve this he decided, in conjunction with HMRC, that the easiest way was to hit households where one party earns £50,000.

If one party earns over £60K then, in the end, all the advantage of having child benefit will be lost.  Between £50K and £60K the advantage is gradually taken away.

The problem is that not even HMRC knows all the people who are affected by this.  They don’t know all your sources of income unless you already fill in an annual Self Assessment Return. Also for some people they will not have an up-to-date address.  So of the 1.2 million people they wanted to write to about this big change, some 300,000 people were not contacted.

But it isn’t fair!

Correct!  Nobody is claiming it is fair.  It is a very blunt instrument designed to take the advantage of child benefit away from better-off families.

The main unfairness arises with looking only at individual income, not the combined income of the couple.

Example of the unfairness:

Say Ms Jones earns £60,000 then she and her non-working partner will not gain from continuing to receive Child Benefit. Indeed she may have to fill in a Tax Return each year – an added hassle.

Say her neighbours Mr & Mrs Smith each earn £30,000 then their Child Benefit claim is unaffected and they have no tax worries.

So despite the same household income, one couple loses out big time.

There is nothing to be achieved thinking about the unfairness of this system, just work out if you are affected and do what you need to do. (Write to your MP if you want the system changed.)

My income is over £50,000 – what happens?

Unless you asked to have your Child Benefit cancelled, nothing will have changed about the payments.

You have however got a tax problem. Unfortunately all Child Benefit earned from 7 January 2013 becomes taxable – at a rate from 0% up to 100%.  The rate rises according to your income. 0% at £50K up gradually to £100% if your income is £60K or above. So if your income was exactly £55,000 you would have to pay HMRC half of the child benefit earned after 6 January 2013 up to 5 April 2013.

How does HMRC get the Child Benefit back?

Important – it is up to you to register with HMRC for Self Assessment using form SA1.  That is the only way they will know to send you a Tax Return.  Only by completing that Return will they get from you that part of the Child Benefit which the government wants back.

You needed to register by 5 October 2013, though if you missed the dealine just do it today.  You can download the SA1 form at www.hmrc.gov.uk/SA1  Another way to register for Self Assessment is to fill in the HMRC online form here

Failure to register with HMRC leaves you liable to a penalty.

What income counts?

All income which is taxable, so that is the total of:

  • Pay from jobs (P60 figure if you get one)
  • Benefits in Kind from jobs (like company car, private medical cover)
  • Taxable profits from a business
  • Dividends
  • Bank interest
  • Taxable rents from letting out property
  • Income not taxable in the UK (say if you work overseas full-time) DOES NOT COUNT

What if we can’t be sure if one of us will earn over £50,000?

This will be common for people who are self-employed, or whose overtime or bonuses vary each year.

In this case you should continue to take the Child Benefit.  If, at the end of the tax year, you discover one of you has income over £50K, then you need to register for Self Assessment and fill in a Return.  If your income is below then you are in the clear for that year.  You still need to check each year.

I already complete a Self Assessment Return each year. What do I do?

For you things are simpler.  If you know your come will consistently be over £60K then you might as well just stop your Child Benefit claim.

Otherwise just continue claiming it.

If, once the year is over, you know your taxable income exceeds £50K then you must put the Child Benefit figure into the relevant box on your Tax Return – or ask your accountant to do it.

For the 2012/13 year only put the benefit received from 7 January 2013 to 5 April 2013.  Enter it in Box 1 on page 5.  In future years you declare the full year’s Child Benefit.

How much Child Benefit do I put in the form?

The amount you have to declare for 2012/13 is only what you received from 7 January 2013 to 5 April 2013.  I will help you here and tell you what the numbers are:

  • £263 for 1 child
  • £438 for 2 children
  • £612 for 3 children

How much of this is repayable will depend on how much your income exceeds £50,000 on the way to £60,000.  For example at £51,000 you have to repay 10%, £52,000 20%, and so on.  This is payable on 31 January 2014. 

What if I just ignore things?

HMRC may or may not already have you in their sights.  They should know your household gets child benefit. If they know, or find out later, that your income when all added together, exceeds £50,000 they will contact you.  By that stage they can charge you a penalty for ignoring your responsibilities.  Ignorance is not accepted as an excuse.  The penalty will be in the range 0% right up to 100%.  You will get charged a lower penalty, or maybe none at all, if you tell HMRC (late) before they get in touch with you.

Further reading on HMRC site:

More on this subject  www.hmrc.gov.uk/childbenefitcharge

To stop your Child Benefit www.hmrc.gov.uk/stopchbpayments  Note that stopping after 7 January 2013 was too late to get out of the need to file a 2012/13 Tax Return.

Estimate how much you will be charged on your Child Benefit https://www.gov.uk/child-benefit-tax-calculator

HMRC’s Child Benefit Helpline is 0845 302 1444.

MY VIDEO on this – http://youtu.be/D3R694xhu98

Note the person to fill in the Stop Child Benefit online form, or phone to have it stopped, must be the person who receives the Benefit.  Even if it is their other half who is the high earner.

If you might be affected don’t dig your head in the sand.  Failure to understand things now will only cause you headaches in the future.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.

PS: If you or your partner earn over £50,000 per year, and one of you gets child benefit, these new rules affect you.

If you failed to stop the child benefit by midnight Sunday 6 January 2013 then you NEEDED TO register by 5 October 2013 to complete a Self Assessment Return for 2012/13.

SPECIAL OFFER: For a special flat fee of £149 (including VAT) we will register you with HMRC and complete the 2012/13 Tax Return for you.  This only applies if Child Benefit is the ONLY reason you need to submit a Self Assessment Return. The fee is payable before we register you with HMRC.  If you have registered yourself, the offer still applies.  The fee is payable up-front, that is when you ask us to do the Return for you.

Call 028 9080 6080 or email mail@huston.co.uk