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Child benefit could be a problem for HMRC

Experts from financial firm Baker Tilly have shown that HMRC could be in for a headache following the new child benefit rules.

Since 7 January this year, for households where one partner has more than £50,000 of income, child benefit is reduced proportionally so that for a home where one parent has more than £60,000 of income, no child benefit can be claimed. 

Where child benefit is no longer available either at the same rate or at all, it is possible to ask for the received payments to be stopped altogether. However, if households chose to continue receiving payments, the high earner will be expected to pay the child benefit back through the tax system, through self-assessment. 

As a result, HMRC is urging those who continue to receive child benefit but are no longer eligible, to register for self assessment before 6 October, if they don’t already complete a tax return.  

 However, HMRC could be creating hassle for its own system. Assuming someone has two children and earns more than £60,000 – the most that will be in tax is the amount of child benefit received in the period 7 January to 5 April 2013, which would amount to £438.  Does HMRC really want more individuals in the self sssessment system just to assess a relatively small amount of tax? It is possible the earner currently has no need to go through self-assessment, having all income currently taxed at source.

The amounts could even be much less than that. If a parent was earning £51,000, just over the threshold, the tax charge would amount to just £43.  

Of course, the tax due should be recovered, just not necessarily through a tax return.  There is already a system in place which allows HMRC to recover up to £3,000 in unpaid tax through the monthly tax on salaries by adjusting the PAYE tax code but HMRC’s current guidance specifically excludes adjusting the tax code for the child benefit payments in the period 7 January to 5 April 2013. 

Gary Heynes and Mike Down of Baker Tilly have argued it’s 'unclear' why HMRC are excluding this period from a coding adjustment and instead they are making it clear that those who fail to register for self-assessment by 6 October could find themselves 'heavily penalised' for a relatively small amount of tax which 'could be dealt with in a much simpler way'.

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