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Are you a high earner claiming child benefit without making a tax return?

Completing the annual tax return

Completing the annual tax returnA high income child benefit tax charge was introduced by HMRC on the 7th January 2013 and it took effect when one person in a household had an annual income of £50,000 (households with one person earning £60,000 or more lost the child benefit payment completely).

People who claim child benefit with an individual income of over £50,000 per annum had until the 5th October 2013 to register for self assessment.  Failure to do so – and to pay the resulting high income child benefit tax charge – may result in a penalty of between 10% and 100% of the amount due, depending on the reason for the failure.  You can be fined simply for having failed to register for self assessment by the 5th October 2013 deadline, and you will be fined £100 for already having missed the 31 January 2014 deadline for submitting a completed return. Interest will also accrue in relation to any unpaid tax.

The charge is set so that the more you earn over £50,000 the more you will need to pay back.  The charge is 1% of the amount of child benefit for each £100 of income you receive above £50,000.  Once your earnings are in excess of £60,000 you will be required to pay back the entire child benefit payment.

What you can do to mitigate the penalties
As well as the penalties mentioned above, you can be charged further penalties which are worked out as a percentage of the tax underpaid. The percentage depends on the behaviour which led to the underpayment of tax, and whether the disclosure is prompted or unprompted by HMRC. So the penalty could be anything between 0% and 100% but in reality will probably lie between these two extremes.

It is a common misunderstanding that the charges relate to basic salary – this is wrong
One point to note is that most people believe that income of more than £50,000 relates only to their basic salary and use that figure.  This is incorrect. The charge is based on “adjusted net income”, i.e. your taxable income.  For example, this may be salary plus benefits (car/medical) plus bank interest less pension contributions and charitable giving.

Consider how to reduce your income
For those who have salaries between £50,000 and £60,000 they may want to consider ways in which they can reduce their relevant income, if only to avoid a painful bureaucratic process. If you wish to discuss this further or need help to register and complete your Self Assessment Tax Return please contact Denise Macrow on 01223 417200.

By Denise Macrow of the Wills, Trusts & Estates team at Cambridge solicitors Barr Ellison. Call Denise on 01223 417200 if you are considering making a tax disclosure to HMRC.

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

This article was first published in September 2013 and re-written and re-published in February 2014.

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