Child Benefit

Potts & Co - Accountancy & Business Advice

Claw-Back of Child Benefit

By | Child Benefit, High Income Child Benefit Charge (HICBC), HMRC, Potts & Co Accountancy & Business Advice News

The high income child benefit charge (HICBC) was introduced in January 2013 to claw back child benefit where the highest earner in the family has total net income of £50,000 or more. The full amount of the benefit is clawed back if one of the parents has income of £60,000 or more.

If this applies to your family you must tell HMRC that you need a tax return in order to self assess the HICBC. Although HMRC manages claims for child benefit, it does not know who the higher earning partners of those claimants are.

Many parents are not aware of the need to pay the HICBC. If your income rises above £50,000, HMRC does not prompt you to pay it. Some parents were issued with penalties for failing to notify HMRC of the need to pay HICBC and one taxpayer challenged his penalty and won.

HMRC has now decided to refund some parents for the penalties they were charged for failing to notify their liability to pay the HICBC for the tax years 2013-14 to 2015-16. To qualify for a refund your family must have started to receive child benefit before 7 January 2013. The penalty will be refunded automatically; you don’t have to contact HMRC.

If you need to pay the HICBC for 2016-17 or a later year you still need to inform HMRC of this liability. You can amend your self assessment tax return online for 2016-17 and 2017-18 to pay the charge, or we can do this for you.

Potts & Co - Accountancy & Business Advice

Long-term implications of child benefit

By | Child Benefit, National Insurance, Potts & Co Accountancy & Business Advice News

Child benefit is paid to parents of young children in the UK, if they claim it. Some higher earning parents don’t claim the benefit, as they know it will be clawed-back as a tax charge. However, not claiming child benefit can disadvantage both the parent and the child in the long term.

Claiming child benefit, whether it is actually paid or not, ensures the parent receives national insurance (NI) credits for periods when they aren’t working or claiming job seekers allowance, whilst the child is under twelve.

To receive the full state pension, the parent needs to have paid NI, or receive NI credits, for 35 tax years. The NI credits from child benefit help plug the gap in the NI record which may be created when one of the parents stays at home to care for the child. Both parents need to build up a complete NI record, as the new flat-rate state pension is not paid based on a spouse’s NI contributions.

The claim also creates a dormant NI record for the child: at the age of fifteen years and nine months, they are allocated an NI number. Where child benefit hasn’t been claimed, the individual needs to apply for an NI number before they can work, open an ISA or receive a student loan.

To avoid these difficulties, the child benefit should be claimed as soon as possible after the child’s birth. Where the parent expects that the benefit will be clawed-back as a tax charge, they should tick a box on the claim form to receive a nil payment. They can reverse this at any time; however, a benefit claim can only be backdated for up to three months.