From 7 January 2013, where a person earns more than £50,000 and they or their partner claim child benefit, a tax charge will apply in the form of the child benefit high income tax charge. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.
The effect of the child benefit high income tax charge will be to apply a tax liability via the self-assessment tax return system. The amount of the charge will be tapered where the child benefit recipient or their partner earns between £50,000 and £60,000, with the effect that once income reaches £60,000 the entirety of the child benefit payment will be reclaimed through the tax charge.
There are a number of areas where care should be given:
1. The charge applies where either the person claiming child benefit or their partner earns more than £50,000. Therefore it will be necessary to consider the earnings of a taxpayer’s partner. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.
2. The child benefit high income tax charge applies from 7 January 2013 therefore a tax liability could arise in relation to the current (2012/13) tax year with the tax being due for payment by 31 January 2014.
3. Where a person is required to make payments on account, this will include any tax arising as a result of the child benefit high income tax charge thus increasing the tax payable at 31 January and 31 July respectively.
4. Where a person earns more than £60,000 it may be preferable to elect not to receive the child benefit payment (known as a ‘nil award’)
5. Claiming child benefit can protect eligibility for the state pension by way of an NIC credit. Therefore taxpayers earning more than £60,000 that do not currently receive child benefit but become eligible in the future should ensure that they do register for child benefit initially and then elect to receive a nil award so as to preserve this protection.
