Child Benefit Charge: Will it affect you?
Child Benefit Charge is a tax payable by an individual (or his/her partner) if either of them has a personal income of more than £50,000 and is eligible for Child Benefit.
What must you do?
You must register for self assessment by 5 October 2013 if you, or your partner, earn more than £50,000 and if either of you is a parent of a child receiving Child Benefit. The fine is hefty for those who fail to notify HMRC; up to 100% of the tax due. If both partners – whether married or not, or living together or not – have adjusted net income over £50,000, the partner with the higher income will be liable for the tax charge.
Who does it apply to?
The Child Benefit Charge applies to anyone with an individual income of more than £50,000 who is eligible for Child Benefit, even if the child lives with someone else; in this case, both of the following apply:
- Someone else receives Child Benefit for their child because the child lives with them, and;
- Someone else is entitled to the Child Benefit because they contribute at least an equivalent amount of Child Benefit towards the child’s upkeep; for example, for food, pocket money, shoes, or clothes.
What is the definition of a partner?
In this context, a partner refers to a person married to and living with—or has lived with during a tax year—and not permanently separated from; or a civil partner living with—or has lived with during a tax year—and not permanently separated from; or a person living with—or has lived with during a tax year—as if married to or living as a civil partner of.
It does not matter whether the child who is living with them is their own child; it is the child’s entitlement that counts.
How is the Tax Charge calculated?
The Tax Charge is calculated at 1 per cent of the Child Benefit paid for every £100 of income between £50,000 and £60,000.
The taxpayer earns £52,000 and receives £400 in Child Benefit. The Tax Charge has been calculated as follows:
Income over £50K = £2,000
Percentage rate to be applied = £2,000 / 100 = 20%
Tax charge = Actual benefit received x 20% = £400 x 20% = £80
This means, that if the individual’s income is more than £60,000 then the tax charge is equivalent to the whole Child Benefit received.
What should you do if you think you are affected by the charge?
If you think you are affected by the Child Benefit Charge you have two options:
- Register for self assessment by 5 October 2013 and carry on receiving Child Benefit; declare it in a self assessment tax return.
- Stop receiving Child Benefit altogether: the person receiving Child Benefit must contact the Child Benefit Helpline in person (telephone: 0300 200 3100 online: http://www.hmrc.gov.uk/childbenefitcharge/stopchbpayments.htm#6). Any Child Benefit payment received after 7th January 2013 should be declared.
Child Benefit must be claimed
Child Benefit is a benefit that every taxpayer is entitled to, so whoever is eligible for the benefit must still claim it, as Child Benefit protects other entitlements such as Guardians’ Allowance, and is linked in to National Insurance contributions and credits towards pensions.