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Child Benefit – will you be liable for extra tax?

Welcome to the Hill Lillis & Company Monthly Tax Tips.

You may not be totally aware of a tax change which comes into force from January 2013. The new rules, which are expected to affect approximately 1.2 million families, will apply to those in receipt of child benefit where the income of one or both partners exceeds £50,000 per annum.  In these circumstances, the partner with the highest income will be liable for ‘The Higher Income Child Benefit Charge’.  This is a tax charge which is computed on a gradual scale, whereby when the higher-paid partner’s income is above £60,000 the child benefit received by the family will be fully re-charged.

We foresee that difficulties are going to arise when there are changes in the family circumstances during a tax year (e.g. separation or divorce) or where there is uncertainty over who is the highest earner (perhaps because one partner receives occasional bonuses). It is worth stressing that the person who is expected to pay the charge is not necessarily the same person who receives the child benefit.

HM Revenue & Customs are investing a great deal of money and staff resources in pursuing this new ‘Tax’ and families could be liable to penalties and surcharges if they do not take the appropriate action to ensure their circumstances are notified when applicable.  This does mean having to register for Self-Assessment and file annual Tax Returns.

If your income is very close to the thresholds, you may wish to consider how you can reduce it for these purposes, perhaps by making additional pension contributions or Gift Aid donations.

Alternatively you may decide it is simpler to elect not to receive child benefit; however if one partner is a non-working carer, what will be the impact on their National Insurance record for future state benefits?

We offer a free 30 minute consultation, so if you would like any additional information regarding the above or any other tax issues concerning you, then please contact us 0121 351 6777 or visit us in our offices in Walmley Village, Walmley, Sutton Coldfield.

This article appears in Walmley Pages Magazine, delivered to over 8,000 homes and businesses, in Walmley and surrounding areas of Sutton Coldfield