Many parents who receive Child Benefit may be blissfully unaware that they are walking into a tax trap.
From 7 January 2013 Child Benefit payments are effectively means tested by the tax system. If either parent, or both parents, has income in excess of £50,000, then part or all of the Child Benefit you have received after 7 January 2013 may be clawed back by the new High Income Child Benefit Charge (HICBC).
For every £100 your income exceeds £50,000, 1% of the Child Benefit you have received will be clawed back. Accordingly, if your income is in excess of £60,000, the benefit you may have received will be fully recovered by the HICBC.
Apparently, over 400,000 people have opted out of receiving Child Benefit and they will be unaffected by the HICBC – you cannot be asked to repay what you have never received!
However, if you continued to receive Child Benefit after 1 January 2013, and if either you or your partner has income in excess of £50,000, then the HICBC will apply. This has implications for high income earners who do not normally submit a self assessment tax return.
You only have until 5 October 2013 to register for self assessment for the year to 5 April 2013. On the return you are required to state the amount of Child Benefit you received for the period 1 January 2013 to 5 April 2013. When your return is submitted, HMRC will work out the amount of the HICBC you need to pay and this will be collected through the self assessment system.
If both parents have income in excess of £50,000 then the highest earner will need to register for self assessment. If you prefer to avoid the HICBC, and registration for self assessment, you could always elect not to receive Child Benefit in future tax years.