CIOT: Parents confused by complex child benefit tax charge rules helped by change announced today
The Chartered Institute of Taxation (CIOT) has welcomed government documents published today which mean that parents who choose not to receive child benefit when the new high income child benefit charge (HICBC)1 is introduced in January will not lose out financially as a result of that decision if their income turns out to be lower than expected.
This addresses concerns raised by the CIOT during the passage of legislation on the HICBC earlier this year.
Patrick Stevens, President of the CIOT, said:
“There has been extensive confusion over the new child benefit charge, partly because of the way the legislation has been produced and partly because of the options available. Parents in receipt of child benefit, uncertain of their or their partner’s future income, have been struggling to decide what action to take by 7 January when the new rules start. The material published today should help parents make decisions.”
New ‘Directions’ (a statement of how the Government will implement the new charge, which has legal effect) issued today amend 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.
Patrick Stevens continued:
“The CIOT spotted this practical problem with the draft legislation and envisaged that many people would choose to continue to receive child benefit, even if there was only a slight chance they might otherwise lose out. This would have meant more people having to pay the HICBC and complete Self Assessment returns, an unwelcome burden.
“These new Directions were promised by the Minister during the Finance Bill debate in July, following the CIOT raising the issue. The effect of this is to ensure that those who elect not to receive child benefit, because they or their partner are on a higher income, should not lose out if their income unexpectedly falls.
“Some parents on over £60,000 will still quite understandably prefer to receive the child benefit and put it aside to meet any HICBC, reportable on a Self Assessment return. Yet as a result of the new Directions, many on income over £60,000 are expected to elect out of the new system, i.e. as a household choose not to receive the child benefit nor pay the tax charge and potentially avoid the burden of completing a Self Assessment return too.
“If you think you earn over £50,000 and live in a household with a child do read the new HMRC guidance2 or seek help from your tax adviser. While there is no need to panic, individuals or their partners may need to take action before 7 January, so should not delay.
“For many people, especially those with fluctuating income or who gain or lose a partner or who don’t know which partner has the higher income, this is still going to be difficult. And, of course, for HMRC, who have to administer it all!
“It is still important for claimants 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 State Pension.”
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 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.
2. HMRC have published new guidance at: www.hmrc.gov.uk/childbenefitcharge
3. The charge is 1 per cent of the Child Benefit paid for every £100 of income between £50,000 and £60,000. So for someone on £57,000 they pay in tax 70% of the child benefit payments they or their partner have received; for someone on £60,000 or more they pay in tax the full amount of the child benefit received.
4. The tax charge will never be more than the total amount of Child Benefit received.
5. 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,
or £1,056 annually for one child or £1,752 for two children.
6. The HICBC has to be paid through Self Assessment. If they are not already in Self Assessment, 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 Self Assessment – at www.hmrc.gov.uk/sa1 or phone the Self Assessment Helpline on 0845 900 0444.
7. 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.
8. 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.
9. 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.
10. If a household in receipt of child benefit has a person with income over £50,000 they would be well advised to keep an eye on their income and budget for the HICBC, possibly putting aside some or all of the child benefit.
11. 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.
12. Where the election is revoked HMRC will repay the child benefit to the claimant. If the high income person’s income is between £50,000 and £60,000 they will need to pay a high income charge through Self Assessment.
13. There are additional rules for extended families and other circumstances.
14. Couples may want to look into ways of better sharing their income or entering into salary sacrifice arrangements so as to minimise their exposure to the HICBC.
15. 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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George Crozier: Contact on 020 7340 0569 or 07740 477374 or email gcrozier@tax.org.uk
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