From the 7th January 2013 The Government will introduce the new High income child benefit tax charge (HICBC). The Government’s plans will means test child benefit, taking it away from tax payers earning over £60K and tapering it where income lies between £50-60K. Child benefit will remain unchanged for families where neither parent earns over £50K.
How does the system currently work?
At present, all families can claim. Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children. One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children. The payments apply to all children aged under 16 and in some cases until they are 20 years old. The system is administered by HM Revenue and Customs (HMRC) which pays out to nearly 7.9 million families, with 13.7 million children.
What are the proposed changes?
If your income is between £50,000 and £60,000 you will have to pay a charge of 1% of the amount of Child Benefit for every £100 of your income above £50,000. If your income is above £60,000 you will have a tax charge that equals the amount of Child Benefit.
Any charge you have to pay will be made via an adjustment to your PAYE tax code. However, If one of the parents earns more than £60,000, they may choose to stop claiming child benefit and save the tax authority the trouble of getting it back. If they keep claiming it, then they will have to disclose this in a self-assessment tax form. Then, HMRC will tax the high earner by the equivalent amount of the child benefit which they or their partner claims.
For example, if you have income of £54,000 and your partner receives Child Benefit for 2 children of £1752 for a whole year, the charge will be 40% of the £1752 Child Benefit = £700. The percentage is determined as follows £54,000 – £50,000 = 4000 /100 = 40%.
If you have income of £70,000 and your partner receives Child Benefit for 2 children of £1752 for a whole year, the charge will be on £1,752 which is the full amount of the child benefit received.
Concerns
Some of the concerns raised include:
- Changes to family circumstances could make it difficult or impossible to calculate the claw-back, or who should pay it
- Taxpayers could be penalised for failing to submit information they have no access to, particularly if a relationship breaks down
- It could create a significant additional number of self-assessed taxpayers, because taxpayers will have to assess their own liability for the new charge – very expensive for HMRC to administer
- The fairness of the systems has been questioned as you could have a family with 2 parents both earning just under £50K each (so total family income of just under £100K) still able to claim the full amount of Child Benefit yet a family with just one parent earning over £60k would be liable for the full tax charge.
What Happens Next?
The earliest that you will have to pay the amount due for the 2012/13 tax year will be during the 2013/14 tax year. HMRC will write to taxpayers in the autumn with more details and to explain what they need to do next. If you are liable to pay the charge, HMRC should send you a tax return to complete during April 2013.
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