CIOT: Child benefit charge decision time for families

Monday, 24 December 2012 11:59 AM

Families with children and a parent with over £50,000 a year income are being warned that the deadline is approaching for a decision on whether to opt out of receiving child benefit or to continue to receive it and effectively repay some or all of it at a later date via the new ‘high income child benefit charge’ (HICBC)1.

The HICBC applies from 7 January 2013. Anyone wishing to opt out of receiving child benefit for the 2012-13 tax year must do so before 7 January 2013. Opting out of receiving child benefit after 7 January will still leave a 2012/13 HICBC, based on the child benefit received after that date. The HICBC equals 1 per cent of the child benefit paid for every £100 of income between £50,000 and £60,000.

Tina Riches, Director, Technical, of the Chartered Institute of Taxation (CIOT) explained:

“It’s decision time for anyone in receipt of child benefit, where they or a partner expect their income to be over £50,000 in the 2012-13 tax year. They can either continue to receive child benefit, and the higher income partner pay the high income child benefit charge after the end of the year, or they can choose not to receive child benefit. What to do depends on a variety of factors.  It is the claimant, i.e. the person receiving the child benefit, who has to take the decision.

“Each of the choices has pros and cons. For those who expect to have income between £50,000 and £60,000, the new tax charge will be less than the child benefit, so the household will usually be better off if the child benefit claimant continues to receive the child benefit and the higher income partner pays the HICBC.

“If you are reasonably sure that your income for the year will be over £60,000, the claimant may want to opt out of receiving the child benefit, as the HICBC would wipe out the benefit received. You will then not face an unpleasant HICBC bill and avoid going into self-assessment (SA) if you are not already in SA.”

There are some protections available for those who opt out. If the claimant opts out, but the higher income ends up below £60,000, then rather than lose the difference between the child benefit payment and the HICBC, the claimant can retrospectively revoke the child benefit opt out for the year, so the household will not lose out. Claimants can revoke their option retrospectively for up to two years after the end of the tax year in question.

Tina Riches continued:

“The situation will be particularly complex for those with fluctuating income or who gain or lose a partner or who don’t know which partner has the higher income. And, of course, for HMRC, who have to administer it all! The new charge is expected to require the equivalent of 450 full-time HMRC staff.”

“If you need to pay the HICBC and you are not already in SA you will need to register for this. Completing an SA return can be a bureaucratic process and many people would rather avoid it if they can. As with any other sums due under SA, you will be able to pay this back as either a lump sum or ask to have it coded out as a deduction from your salary over a subsequent tax year.”

As a final point, Tina Riches added:

“Even if your household receives child benefit for 2012/13, if you think your income will go above £60,000 in 2013/14, then you may want to opt not to receive the child benefit for 2013/14 – the deadline to do this will be 5 April 2013. Don’t let that catch you out!”

The CIOT is emphasising that even people intending to opt out of receiving child benefit should complete a child benefit claim form for any new children. Tina Riches explained:

“It is still important for people to claim the child benefit, even if they choose not to receive the cash, so they are registered to receive National Insurance credits which can help to protect their future state pension entitlement.”

Notes to editors

1.       The HICBC is a tax charge payable if a taxpayer, or their partner, has income of more than £50,000 for the tax year (roughly April – March) and one of them is entitled to receive Child Benefit.

The charge may also be payable by someone who receives contributions towards the upkeep of a child – eg where a parent in one household claims the child benefit  and makes a payment, such as maintenance, to the other parent, a grandparent or other party with whom the child lives.

HMRC have published guidance at: www.hmrc.gov.uk/childbenefitcharge

2.       The charge is 1 per cent of the Child Benefit received for every £100 of income between £50,000 and £60,000; for someone on £60,000 or more they pay in tax the full amount of the child benefit received.. So for someone on £57,000 they pay in tax 70% of the child benefit payments they or their partner have received.

The tax charge will never be more than the total amount of Child Benefit received.

3.       Child benefit is usually paid to one parent for each child under 16 and certain others up to 19. The rate is:

a.    £20.30 a week for the eldest child and

b.    £13.40 for additional children,

ie £1,056 annually for one child or £1,752 for two children.

4.       The HICBC has to be paid through Self Assessment (SA). If they are not already in SA, taxpayers due to pay a HICBC for the first time must notify HMRC by 5 October after the end of the tax year and join SA – at www.hmrc.gov.uk/sa1 or phone the SA Helpline on 0845 900 0444. 

5.       If a household expects the higher income person to have income over £60,000 the child benefit claimant can choose not to receive the child benefit. The guidance on this is at: www.hmrc.gov.uk/stopchbpayments, which has a link to the form to make the election or claimants can phone the Child Benefit Helpline on 0845 302 1444. In such circumstances no tax charge will be payable.

6.       To determine whether a partner received child benefit and to determine the higher income person in a couple partners will either have to share information on their benefits and income, use the HMRC facility or write to HMRC (taxpayers cannot phone) to ask whether their partner or former partner  received child benefit and if their partner or former partner’s income was higher or lower than their income; however HMRC may not have up to date information about income.  If an estimate is used tax returns may need to be changed, often after 31 January once accurate figures are due. NB. Authorised agents with an SA authorisation can use the online form.

7.       The definition of partner is due to follow the same rules as for Tax Credits and includes married couples and civil partners (unless permanently separated) and those living together as married couples or civil partners. HMRC are expected to police this in the same way as for tax credits, matching addresses of taxpayers and claimants to help identify couples.

8.       If the higher income person’s income unexpectedly falls to below £60,000 the election not to receive the child benefit can be revoked, no later than two years after the end of that tax year, so they are not out of pocket. The guidance on this is at: www.hmrc.gov.uk/stopchbpayments, which has a link to form to do this.  Where the election is revoked HMRC will repay the child benefit to the claimant.

Following representations from the CIOT, the Government published new guidelines in October amending the effect of the HICBC legislation by providing a safety net for those households that expect the higher income partner’s income to exceed £60,000, ask not to receive child benefit, but unexpectedly have income of between £50,000 and £60,000, so the HICBC would be less than the child benefit. HMRC will now cancel their election on request, pay the child benefit and the higher income person will pay the partial charge.

9.       There are additional rules for extended families and other circumstances.

10.   The Chartered Institute of Taxation

The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries.  The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 16,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

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• child benefit