UHY Ross Brooke Chartered Accountants

The Father’s Day gift you don’t want to receive

child benefit and income tax

On your special day this is one father’s day present you will not want.

Child benefit claimed, repaid, income tax rate and risk of a fine from HMRC.

Way back in 2013 we published a blog about the unfairness of the Child Benefit entitlement and the marginal rate of tax on it for higher earners.

Since then, the only change has been the increased number of working parents caught in this 65% income tax rate trap. The cut off points for claiming and repaying the benefit have remained the same.

Individual parents earning £50,000 and below are entitled to receive the full child benefit; those earning £60,000 receive no child benefit, and those in between receive a tapered child benefit. For some unlucky parents, this amounts to a 65% income tax rate!

In the 9 years that have passed, many people will have seen their salaries increase and may not realise that if they are claiming Child Benefit, they must complete a self assessment tax return, and are required to pay back all or some of the benefit.

Failure to complete a self assessment (SA) tax return could lead to a fine of up to 30% of what is owed to HMRC. Some families will have received a reminder letter to HMRC to complete the SA, but just because many have not, they are not excused from completing the self assessment and repaying the benefit.

To ensure that you don’t receive the ‘gift’ of a fine from HMRC, do ensure that you complete your self assessment tax return in good time, and if you need help completing it, or structuring your income in a tax efficient way, do get in touch.

We’d like to add that Child Benefit is not necessarily restricted to fathers, nor that HMRC only fine dads. It is the responsibility of the highest earner in the household to declare any overpayment.

It’s also worth checking whether you can reclaim child benefit if your income has dropped significantly, for example, through the effects of furlough or reduced availability of work.

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