A CHILD benefit loophole could land parents with an unexpected fine – here’s how to avoid it.
It comes after a dad was chased by the tax man for a payment worth £2,754 after he failed to file a high-income child benefit claim.
GettySome parents are eligible for the high income child benefit charge[/caption]
Like many parents, Matthew Kensall wasn’t aware that he had to declare his earnings and pay the HMRC money back because his earnings reached £50,000 a year.
The HMRC issued Mr Kensall with a payment demand worth £2,295 and a late penalty fee worth £459.
But the dad appealed the payment demand and in his First Tier Tribunal case, the HMRC was ordered to waive the penalties.
This decision was taken because many parents remain unaware of the high income child benefit charge.
Keith Gordon, a tax barrister at Temple Tax Chambers said: “The charge can catch individuals whose taxable income exceeds £50,000 meaning that they might have to repay to HMRC the child benefit that their partner received.
“Other difficulties can arise when calculating income. It means more than salary.
“It can include bonuses and also non-cash benefits.”
For example, in Mr Kensall’s case, his company car would need to have been included in his claim.
To work out if your income is over the £50,000 threshold, you’ll need to work out your “adjusted net income”.
Your adjusted net income is your total taxable income before any allowances and this includes interest from savings and dividends.
You can use the child benefit tax calculator on Gov.UK to get an estimate of your adjusted net income.
Sarah Coles, personal finance expert at Hargreaves Lansdown said: “Once you know your adjusted net income, and you know how much child benefit you got during the year, you can work out what you need to pay.
“You lose 1% of the child benefit for every £100 of this income that’s over £50,000.”
To pay the high income child benefit charge and avoid a £100 fine, you must fill in a self-assessment tax return by January 31.
Some parents continue to claim child benefit and pay the charge because it helps them to build up national insurance credits, which you need to qualify for the state pension.
But if you fail to let HMRC know and don’t pay the tax charge by January 31, they can fine you – on top of what you owe.
If you fail to file a self-assessment tax return you could be fined up to 30% of what you owe by HMRC.
A late filing penalty of £100 also applies and if it’s more than three months late interest
If it’s longer than that interest starts to be charged on outstanding balances.
What is the high income child benefit charge?
Child benefit is given to families bringing up a child under 16 or under 20 if they’re in “approved” education or training.
There’s no limit to how many children you can claim for.
The benefit is worth £21.80 a week for your eldest or only child, then £14.45 per child for any additional children.
However, if you or your partner individually earn over £50,000 you have to start paying back some of your child benefit.
If your income is between £50,000 and £60,000 the charge is 1% of your child benefit for every £100 between those two figures.
If your income goes over £60,000 all your child benefit is taken away.
This means couples can have a combined income of up to £100,000 without having their child benefit deducted.
The benefit amount can be passed on to family members who look after your children.
But that parent has to be claiming child benefit already.
If your income is over the threshold, you can choose to still get payments and pay any tax charges to HMRC at the end of each tax year.
Or, you can opt-out of getting payments and not pay the tax charge.
Parents have to notify HMRC if they are liable for the charge and they must file a self-assessment tax return to pay it.
Charity Turn2Us suggests using the government’s child benefit tax calculator to see how you could be affected by the high income tax charge.
How do I appeal against a HMRC tax decision?
HMRC will write to tell you if you can appeal against a tax decision.
Your decision letter will tell you how to make an appeal and when you must appeal by. The deadline is usually 30 days from the date of the letter.
You can either:
use the appeal form you got with your decision letterwrite to HMRC at the address on the letter
If you do not have a letter you can write to the HMRC office related to your return.
You must include:
your name or business nameyour tax reference number (this will be on the decision letter)what you disagree with and why
You can also include what you think the correct figures are and how you’ve calculated them if you like.
You should also tell HMRC if you have any extra information or if you think they’ve missed something.
After you send your appeal the case worker who made the decision will look at your case again and consider your appeal.
You can accept the offer of a review or appeal to the tax tribunal.
How do I appeal to the tax tribunal?
You can appeal to the tax tribunal online.
You’ll need:
A scan or photo of your original notice or review conclusion letterReasons for your appeal, so the judge can understand your side of the argument
You’ll get a letter from the tribunal explaining what happens next. You might be asked to provide more documents to support your case.
Not all cases will have a hearing, but you can ask for one.
You’ll usually get at least 14 days’ notice of the date of the hearing.
The tribunal will write to you with details of what you need to do.