If you earn over £50,000 and you or your partner receive child benefit you may need to register for Self Assessment in order to declare this, but you only have until 5th October 2013 to do so.
As announced in last year’s Budget, the Government intends to claw back child benefit from higher earning households, specifically those in which at least one parent earns more than £50,000. In cases where a parent’s earnings are above £60,000 the benefit will be clawed back entirely.
The new tax charge, high income child benefit charge (HICBC), was introduced on 7th January 2013, being 1% of the child benefit received for every £100 of income in excess of £50,000. It is the responsibility of the individual who is liable to ensure they declare the child benefit payments by registering for Self Assessment and filling in a tax return. If both parents in the family earn over £50,000, it is the highest earner who will need to register.
HMRC have written to families who may be affected by HICBC to inform them of what steps they now need to take. Those who need to can register for Self Assessment on the HMRC website.
It’s worth remembering that although the deadline to register for Self assessment is 5th October, you will not have to pay anything until 31st January 2014.
Opting Out of Child Benefit
It is possible for parents to ‘opt out’ of receiving child benefit altogether, more than 400,000 high earning families already have, however if you had not already done this prior to 7th January and have already received the benefit for some or all of the period to 5th April 2013 you will still need to complete a tax return. Opting out now may allow you to come out of Self Assessment for future tax years.
Reducing your income
While the limit over which the child benefit charge takes effect is £50,000, it may be worth considering options to reduce your income to below that threshold, hence removing your liability to the charge.
- Salary sacrifice schemes reduce your earnings in return for a non-taxable benefit, such as childcare vouchers. If your employer offers such schemes it may be something to look into.
- Similarly, some Pension schemes work in the same way, reducing your earnings by the amount you save. In most cases this is also topped up by your employer and is another tax efficient way to save for the future