Parents earning in excess of £50,000 are being urged to check their eligibility for Child Benefit due to the recent highlighting of a number of cases where parents claiming the benefit have not been notified by HMRC that they are liable for the High Income Child Benefit Charge, which requires them to pay a tax charge via the Self Assessment system. Contributor David Redfern, Managing Director – DSR Tax Claims Ltd.
As a result, affected parents have been landed with large backdated tax bills and penalty charges. Consequently, high earning parents claiming Child Benefit to check their tax affairs urgently to ensure they have not left themselves liable to additional tax liabilities totalling thousands of pounds in some cases.
The High Income Child Benefit Charge (HICBC) was introduced by HMRC in January 2013 and was intended to rationalise the Child Benefit system. The HICBC is applied to parents who earn more than £50,000 per year in adjusted net income (total taxable income less pension contributions and gift-aid donations) and places a tax charge of 1 percent on Child Benefit for each £100 above the £50,000 threshold the high-earner makes, meaning that those earning £60,000 or above will receive no Child Benefit.
David Redfern commented “There have long been criticisms since the tax charge was introduced, not least that it appears to be levied unfairly, meaning that households with two parents earning £45k per year who therefore have a joint income of £90k aren’t liable for the charge whereas a household with only one high earner of £55k is liable. But now it has emerged that a number of households have unwittingly found themselves with huge, unexpected tax bills due to one parent’s income rising above the threshold since the HICBC was introduced and not realising that they would now be impacted by this tax charge”. He added that the situation was made more complex by the fact that the household’s high earner is not necessarily the same person who claims Child Benefit.
HMRC appears to have identified this anomaly and are reviewing ‘Failure to Notify’ penalty charges for tax years 2013/14 to 2015/16, issuing penalty refunds to those they believe to have a ‘reasonable excuse’ not to have notified HMRC. However, Redfern stated “Despite HMRC recognising that some families have unknowingly found themselves in conflict with HMRC by not notifying them of a change in their financial circumstances, HMRC’s refund will only quash the penalty. The high earner will still be liable to pay any unpaid tax, which could potentially run to thousands of pounds”. In addition, Redfern noted that not all households who had received penalty notices during these tax years would be able to get their penalty charges quashed, stating that “HMRC are only looking at cases where the household could reasonably claim ignorance of the tax charge introduction. This means that families who received HMRC communication about the tax charge or those who claimed Child Benefit after HICBC was introduced will not be able to get their penalty charge refunded”.
Redfern questioned how the situation had occurred, stating that “HMRC not only have information on each taxpayer’s income but they are also aware of households claiming Child Benefit, so it is perhaps surprising that parents have found to their detriment that there has been no effective tying-together of information streams, considering that some of these penalties go back to the 2013/14 tax year. However it is important that high earning parents check their Child benefit eligibility as soon as possible”. Affected parents who wish to avoid the tax charge are able to cease their claim to Child Benefit so the charge no longer applies. Additionally, there may be the option to lower their adjusted net income by increasing their pension contributions via the Additional Voluntary Contribution scheme although financial advice is recommended before taking this option. Taxpayers who believe they owe additional tax as a result of their investigations are urged to contact HMRC as soon as possible to make payment arrangements.