If you’re a higher-rate taxpayer and you or your partner receives child benefit, you might be liable for an annual payment known as the high income child benefit charge.
Quite a few of our clients are in this position and, as it happens, quite a few forget to tell us about it when we’re putting together their tax returns at the end of the year.
At best, that means another round of work when HMRC queries this point. At worst, it could mean a fine.
So it’s important to get it right from the start.
Will you have to pay the charge?
The first test is whether you earn more than £50,000 per year in terms of your total taxable income before personal allowances are taken into account – your ‘adjusted net income’.
If not, you’re under the threshold for this particular additional charge and can continue to receive child benefit without concern.
If you are over the line, though, the next test is around how and why you and your family interacts with the child benefit system.
You’ll be liable if:
- you or your partner receive child benefit payments, or
- someone else (typically a former spouse or partner) receives child benefit for a child living with you and pays an equal amount, or more, towards the cost of looking after that child.
It doesn’t matter whether the child is your own – it’s all about living arrangements.
And if your partner also has an income of more than £50,000 but yours is higher still, you’ll be responsible for the tax charge, not them.
Unfortunately, relationships can be complicated, and it’s not always easy to find out whether your ex-partner, or even your current partner, is receiving child benefit.
HMRC has thought of this: you can enquire directly with them and they’ll give a clear yes-or-no answer on this specific question, without releasing any other personal information.
Child benefit is what’s known as a ‘universal benefit’, given to everyone regardless of income, but clearly the Government would rather not pay it to people who don’t really need it.
If you feel that it’s worth losing out on a small amount of income to simplify your tax return, and to avoid paying the charge, you can choose to opt out of child benefit payments.
If you decide to do this, though, official advice is to fill in the form anyway so you can gain National Insurance credits which count towards your state pension, and to make sure your child gets their NI number automatically because they’re already in the system.
Talk to us
There are additional complications relating to changes in relationship status within the year, separations and fluctuations in earnings.
If Knight & Co handles your personal tax return, the easiest thing by far is to talk to us and make sure we’ve got the clearest possible picture of your family setup.
That way, we can make sure your tax return properly reflects the circumstances during the period covered by the tax return.
Talk to us about self-assessment tax returns.