Changes to Child Benefit

Understanding the High Income Child Benefit Charge in 2024

The UK Government has continued its policy of withdrawing child benefit from high-income households. Rather than cancelling the payment outright, HMRC imposes a High Income Child Benefit Charge (HICBC) to recoup some or all of the benefit from higher earners. Here’s what you need to know about how this charge works and how it may affect you.

Who is Affected by the High Income Child Benefit Charge?

You will be subject to the High Income Child Benefit Charge if:

  • You or your partner have an individual income of over £50,000 a year.
  • You receive Child Benefit or get financial help from someone who claims Child Benefit for a child that lives with you.

Key Points to Consider:

  • Definition of ‘Partner’: HMRC defines a partner as any person you are married to, any person you are in a civil partnership with, or any person you are living with as if you are married to or in a civil partnership with.
  • Non-Parent Guardians: It does not matter if the child living with you is not your biological or legally adopted child; you will still be subject to the charge if you claim Child Benefit.

If you are unsure whether you are affected, HMRC provides an online tool to help you determine your liability.

How Much Will You Be Taxed?

The amount of tax you need to pay depends on two factors: the amount of Child Benefit you receive and your income level.

Income Levels and Charges:

  • Income over £60,000: You will have to pay back all of the Child Benefit you receive.
  • Income between £50,000 and £60,000: You will have to pay back 1% of the Child Benefit for every £100 you earn above £50,000.

Example Calculation:

  • If you earn £57,000, you will need to repay 70% of the Child Benefit received.
    • Calculation: (£57,000 - £50,000) / 100 = 70%.

What Do You Need to Do?

If the changes affect you, you have two main options:

  1. Continue Receiving Child Benefit:
    • If you decide to keep receiving Child Benefit, you must register for Self Assessment and file a tax return every year to account for the HICBC.
  2. Stop Receiving Child Benefit:
    • To avoid the tax charge, you can opt to stop receiving Child Benefit. You will need to notify the Child Benefit Office of your decision.

Detailed Steps to Take

Registering for Self Assessment

If you choose to continue receiving Child Benefit, follow these steps:

  • Register for Self Assessment: Visit the HMRC website to register if you haven’t done so already.
  • File a Tax Return: Complete and submit your Self Assessment tax return annually, declaring your income and Child Benefit received.
  • Pay the Charge: Calculate the HICBC and include it in your tax return. HMRC will provide a bill for the amount due.

Stopping Child Benefit

To stop receiving Child Benefit:

  • Contact the Child Benefit Office: Notify them that you wish to stop receiving payments. This can be done online or by phone.
  • Confirmation: Ensure you receive confirmation that the payments have stopped to avoid unexpected charges.

Implications for Business Owners

For business owners, the HICBC can have additional considerations:

  • Income Fluctuations: If your income varies significantly from year to year, careful planning is required to avoid unexpected tax liabilities.
  • Salary and Dividends: If you draw a salary and dividends from your business, you need to consider how these impact your overall income and the HICBC.

Seeking Professional Advice

While we at TaxAgility cannot provide direct financial advice, we can discuss the implications of these changes within the broader scope of your financial planning. We can also introduce you to suitable financial advisers for specific financial advice if needed.

How We Can Help:

  • Understanding HICBC: Explaining how the charge works and what it means for your finances.
  • Self Assessment Assistance: Helping you register and complete your Self Assessment tax return.
  • Strategic Planning: Discussing strategies to manage your income and Child Benefit efficiently.

Contact Us

If you need more information or assistance regarding the High Income Child Benefit Charge, please call us on 020 8108 0090. Our team is here to help you navigate these changes and ensure your financial planning is up to date.

Important Note

We are not authorized financial advisers but will introduce you to suitable firms or individuals when you are considering transactions that would benefit from authorized advice. We are not regulated by the Financial Services Act and will refer you to an FSA-regulated provider if that will benefit you.

by Robin Brown

Statutory Residence Test

Statutory Residence Test

The Government has announced that it will introduce a new residency test in the Finance Bill of 2013. The Statutory Residence Test is designed to formalise and codify the way in which the HMRC determines an individual’s tax residency status. In the past, this has been decided by case law, HMRC guidance and standard practice. So, in short, the test is intended to clarify a complex and vague process. It will be enforced from 6 April 2013.

The test requires people to consider their previous residence status, the number of days they’ve spent living and working in the UK in the relevant tax year, and their number of ‘ties’ to the UK.

Here’s a basic summary of how the Statutory Residence Test will work.

The test is broken down into three test stages:

  • an automatic residence test
  • an automatic overseas test
  • a sufficient ties test

1.      The Residence Test

There are four automatic residence tests and they consider whether a person:

  • spends 183 days (or more) in the UK in a tax year
  • has their only home (or homes) in the UK
  • works full time in the UK
  • in certain circumstances, dies during the year.

If an individual meets at least one of these criteria, and none of the automatic overseas tests (see below), they will be automatically resident for the year.

2.       The Overseas Test

A person will be automatically non-resident if one of these tests is met:

  • only a minimal number of days were spent in the UK in the tax year (fewer than 16 or 46 depending on when they were last UK resident)
  • the individual works full time overseas
  • in certain circumstances he or she dies during the year.

Most people will be able to determine their residency status through completing these first two steps. But if it’s still unclear, a third --- more complex --- test stage has to be completed.

3.       The sufficient ties test

The next step is to look at the sufficient ties test. Residence status depends on the number of ties with the UK in conjunction with the number of days spent here. The ties to consider are:

  • family tie
  • accommodation tie
  • work tie
  • 90 day tie
  • country tie (only applicable if the individual was resident for one or more of the preceding three tax years.)

The application of these factors varies according to the individual’s status in the previous three tax years.

Although it is supposed to clarify the issue of residency, the draft legislation consists of over 50 pages of draft clauses.

To make things easier, there is a prototype online-tool available on HMRC’s website.

Please do not hesitate to contact us if you would like more information and advice on the Statutory Residence Test on 020 8780 2349.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

 

 

 

by Robin Brown

Closing In On Tax Evasion HMRC Report

In December 2012, HM Revenue & Customs published an online booklet entitled Closing In on Tax Evasion.

The Government’s programme of austerity has propelled debates about the equality of the tax system into the national papers. In recent months, the tax affairs of public figures and high-profile corporations have been exposed and discussed on an unprecedented scale: Amazon, Starbucks and Google have all been accused of paying far too little. The moral and legal distinction between tax evasion and avoidance are being eroded in the public mind.

Reacting to this surge of debate and concern, the fourteen-page document Closing In on Tax Evasion sets out HMRC’s objectives, recent achievements, short term tactics, and longer term strategy for stamping out tax evasion in the UK.

In the foreword, David Gauke (Exchequer Secretary to the Treasury) declares that the publication should reassure honest tax payers that HMRC is committed to enforcing taxes fairly and strictly. He adds: ‘It’s also a message to those who evade that we are determined to detect and deal with them – the net is closing in’.

The range of actions that have already been taken

HMRC has:

  • signed an innovative agreement with Switzerland to recover billions of pounds in previously uncollected tax
  • developed and expanded its technical capability to join data together and uncover the hidden links in data using the advanced capabilities of Connect, HMRC’s new computer system.
  • handled around 130,000 reports in the last year from the Tax Evasion and Customs Hotlines, which allow the public  to  notify HMRC confidentially  if people are not paying the tax they owe
  • created the Offshore Coordination Unit, dedicating an additional 100 investigators to tackling offshore evasion
  • established a dedicated team dealing with the tax affairs of about 5,000 of the wealthiest individuals that has already brought in an additional £500 million in tax since 2009
  • brought in expertise from the private sector to help HMRC to deploy the latest thinking and techniques
  • invested in a team of experts who, in collaboration with the Dutch Tax Administration, have developed tools and techniques to mine the internet for data

HMRC’s Success Stories and Achievements

Using third party data HMRC identified an individual who was found to have 11 undisclosed properties in several Mediterranean countries. The total cost of the properties exceeded €1.3 million despite the individual declaring UK income of just £6,000.

As part of a campaign aimed at medical professionals, Connect helped HMRC make the links between tax records and data from hospitals, pharmaceutical companies and insurers. This has resulted in £33 million in unpaid tax being recovered so far including one case of £1.2 million. One doctor was also prosecuted for trying to evade £92,000 of tax.

The HMRC has seen more than 400 criminal convictions in 2011-12 achieving £1 billion of revenue benefit, either in losses prevented, or in payment of tax

HMRC has begun to apply a penalty since 6 April 2011 of up to 200 per cent of the tax due if an individual does not tell them about income or gains from an offshore bank account.

Short Term Plans

In the short term, HMRC will:

December

  • Launch a radio campaign
  • Establish a new unit dedicated to tackling offshore evasion

January

  • Begin implementing the Swiss/UK Tax Cooperation Agreement
  • Launch a campaign on missing VAT returns
  • Use the latest extract of Land Registry data to chase companies who try to evade property tax
  • Begin analysis of Self Assessment returns to identify potential evasion

February

  • Pilot a new scheme of credit reference checks
  • Set up five new task-forces targeting high risk groups

March

  • Start a new campaign to target those who profit from multiple properties in the UK or abroad who have not paid their tax liability
  • Publish a comprehensive strategy to tackle offshore tax evasion

April

  • Complete the increase in the number of investigators dedicated to pursuing affluent tax evaders and avoiders
  • Add almost half a million tax evasion hotline reports made by the public into the Connect system

May

  • Begin testing new data from the Police used to identify fake identities being used in fraud
  • Begin new work to identify offshore trusts that are being used to hide income

 Long Term Goals

HMRC plans to:

  • Continue to improve its  analytics and risking capabilities by training additional risk analysts and expanding its use of Connect
  • Build on its enhanced automatic exchange agreement with the USA – the first of its kind – and look to conclude similar agreements with other jurisdictions
  • Increase the number of criminal investigations into offshore tax evaders, publishing the names and details where appropriate and applying penalties for those who hide assets in jurisdictions that don’t provide HMRC with full exchange of information
  • Ramp up action against affluent tax evaders; using data to focus on serial offenders, offshore properties, and high risk professions or groups
  • Increase the annual number of prosecutions for evasion five-fold by 2014-15
  • Launch 20 new task-forces every year between now and 2015, using data to help target high risk groups or sectors

Please feel free to contact TaxAgility on 02087802349 should you require any further information.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

by Robin Brown

Autumn Statement 2012: The Key Points

George Osbourne's Autumn Statement declared that the Government’s economic strategy is designed ‘to reduce the deficit, restore stability, equip the UK to succeed in the global race and rebalance the economy.’

The Autumn Statement admitted that over the past three years the recovery has been slower than forecast, maintaining that this was down to the impact of the financial crisis on GDP being greater than expected, the sovereign debt crisis in Europe, and the way in which commodity price driven inflation has reduced real incomes and raised budget costs.

Despite this, he attempted to claim a number of successes for his Government’s fiscal policy – assertions that were met with a chorus of jeers and groans from across the House.

He argued that the government’s policies have reduced the deficit by a quarter, created 1.2 million private sector jobs since the first quarter of 2010; and caused market interest rates to fall to near record lows.

But critics fiercely refute the Government’s belief that the economy is healing; they maintain that the statement represents an attack on the welfare system and demonises the most vulnerable sectors of British society.

More specifically, the Chancellor announced that there would be no net tax rises. Along with this, the Office for Budget Responsibility updated the forecasts for growth (1.2% for 2013, rising to 2.8% by 2017) and borrowing (to fall from £108bn in 2012/13 to £31bn in 2017/18).

Here are some of the highlights:

  • Cancellation of the previously proposed fuel duty increases.
  • Increase in the Annual Investment Allowance to £250,000 for 2 years from January 2013.
  • The main Corporation Tax rate is to be cut to 21% from April 2014.
  •  Further increase of £235 in the personal tax payers allowance for 2013/14.
  • A reduction in the annual allowance for pension contributions from £50,000 to £40,000 from 2014/15.
  • The creation of a new £1 billion Business Bank.
  • An increase in the Bank levy is forecast to raise £515m for 2013/14.

View the Autumn Statement in full

If you have any questions about the Autumn Statement 2012 and how it may affect you please contact us at 020 8780 2349

 

by Robin Brown