Do you claim child benefit?
Do you claim child benefit?
By Lesley Sutton – Revell Ward
Did you know that child benefit is clawed back if your own or your partners total income for a tax year exceeds £50,000, and by the time your income reaches £60,000 it is withdrawn completely? The clawback is called the high-income child benefit charge or HICBC.
Here are my top tips for managing these complex rules:
• How do you work out total income? The definition of income here is a little tricky. HMRC use a measure called adjusted net income. This is your total taxable income before the personal allowance is deducted but after gross adjustments for gift aid donations and pension contributions.
Key Point: Pension contributions and donations are often forgotten but they can make a real difference to the charge.
• Is there a spouse or partner? Married individuals or civil partners are caught unless they are separated by a court order or in circumstances which are likely to be permanent. For those who are unmarried or not in a civil partnership, the test is different. If the couple are a man and woman, they must be living together as ‘husband and wife’. If they are the same sex they must be living together as if they were civil partners.
Key Point: If a couple formally separate and have a choice who claims child benefit it may make sense for the lower earner to make the claim.
• What happens when income exceeds the threshold? If your own or your partners income goes over the threshold, the excess child benefit (HICBC) is collected via a self-assessment tax return. The charge is levied onto the partner with the highest earnings in that tax year.
Key Point: If you are the higher earner and are not already required to file a self-assessment tax return, you will need to register with HMRC to do this. If the charge arises in 2017/18, registration is required before 5 October 2018.
• Should I elect not to be paid child benefit? You can continue to receive it and pay the clawback charge (HICBC) after the end of the tax year. This may be preferable if your income levels fluctuate. However, you prefer you can cancel the payment of child benefit at any time. If you have an online account with HMRC you can cancel via this account. If not then you can phone HMRC on 0300 200 3100.
Key Point: Before cancelling remember that there is a difference between claiming child benefit and receiving it – see below.
• What about national insurance and state pension? If your child is under 12 and you or your partner don’t work or don’t earn enough to pay national insurance contributions, child benefit can help you to qualify for national insurance credits. These credits count towards your state pension so you don’t have gaps in your NI record.
Key point: Make sure that you still claim child benefit, even if you elect not to be paid it due to income levels.
• What happens if I get it wrong? If you have realised that you should have had a clawback charge then this can easily be corrected now. HMRC look favourably on taxpayers that look to correct errors rather than waiting for them to be spotted. The HICBC came into play on 7 January 2013 and so applied form tax year 2012/13 onwards. I still see cases where HMRC have only just identified the error and are now looking to correct tax years from 2012/13 onwards.
Key Point: If you receive a tax assessment from HMRC then make sure that HMRC’s calculation is correct. In a recent case, I was able to reduce an assessment for £5,700 by more than 50% by identifying errors in the calculation. So please get in touch if I can help.