Child Benefit Clawback

Back in 2012 HMRC decided to introduce a new stealth tax.  The target was high earning parents, in particular single income families, from 7th January 2013.

Every parent is entitled to child benefit.  If either parent earns over £50,000 then some of this child benefit is now refundable.   The amount refundable is equivalent to increasing tax on earnings over £50,000 to 60%, capped at the total child benefit received.

Those who know they have very high earnings may choose not to receive the child benefit and hence not have to repay it.  However registering for child benefit can earn the recipient national insurance credits towards state pensions, etc. For a non earning partner these credits are very valuable and hence to elect to not receive the child benefit could reduce their pension.

Please note that it is the higher earning parent who has to make the repayment, regardless of which parent receives the child benefit.  Unfortunately there is no facility for legally discovering who has received benefits or who the higher earner is if the parents do not voluntarily offer this information.  Professionals such as accountants are not even legally allowed to ask non-clients for such information.

Those higher earning parents who already receive a Personal Tax Return to complete e.g. because they have unearned income, need to remember to complete the child benefit section of that return to make repayment of child benefit received.

Higher earning parents who have a refund to make and who do not currently have a Personal Tax Return to complete had to register with HMRC by 5th October 2013 to get a Personal Tax Return, etc.

We have now completed a whole tax year under these new rules and HMRC are using their systems to start to check that everyone has done as requested.

Their first response has been to send reminder letters to likely child benefit recipients, to remind them of their responsibilities.

If you do not want to get your partner or yourself in trouble then please volunteer your income and child benefit details so that between you, you can decide who may need to declare and make a child benefit refund to HMRC.

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