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Saturday, 25 October 2014

Don’t bury your head in the sand over new child benefit entitlements

Families in Cumbria are being warned they need to take action if they receive a letter from the taxman about child benefits.

Carlisle-based accountancy firm Saint & Co says people affected must be prepared for new rules that come into play on January 7.

The rules state that if an individual or their partner – whether married or not – has a personal income in excess of £50,000 and is receiving child benefit, a decision has to be made as to whether they continue receiving that.

Details will be highlighted to those affected in a letter from HM Revenue and Customs about the high income child benefit charge.

Those high earners who choose to continue will have to complete a tax return to calculate and pay the relevant tax charge.

And if a person’s income exceeds £60,000 the tax charge payable actually equates to the total child benefit received.

Pauline Jackson, tax partner at Saint & Co, said: “These new rules are complex and may prove difficult to comply with.

“For example, where couples do not disclose their income to each other or where there has been a second marriage, one partner could have to pay a tax charge for child benefit received by the other partner on behalf of children who they may have no responsibility for, let alone be related to.’

One of the outcomes of the new tax charge is that people who are currently not required to complete a tax return, may now have a legal obligation to do so.

This will mean registering with HM Revenue and Customs and then completing and filing a tax return.

There has been some criticism of the new rules. For example, a couple, one of whom earns £15,000 and another £52,000, will have a tax charge to pay because of the person earning over £50,000.

But a couple who each earn £33,500 – the same joint income as the first couple – will avoid any payment.

Dependent upon the amount of tax charge which is payable and the individual’s personal tax position, there could be a knock-on effect resulting in half yearly payments on account having to be made, or increasing those which would otherwise be payable.

The situation is even more complicated for those with fluctuating income or those who start or finish employments part-way through a year, because one year they may have a tax charge and then none the next. For those who decide to stop receiving child benefit, they will have to call a helpline or fill in an online form.

Should a person’s personal circumstances change – leading to a drop in income that puts you back in the charge-free band – those who opt out will have to re-register.

Ms Jackson said: “Couples should take advice from their accountant or tax adviser to enable them to fully understand the impact of the tax charge for their own circumstances and, if appropriate, whether they should continue to receive child benefit.”

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