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Basic rate taxpayers could now face ‘high income’ tax charge as Rishi

Basic rate taxpayers could now face ‘high income’ tax charge as Rishi

Up until 2013, child benefit was available to all UK families and was not means tested or dependent on their income. However, in 2013, this changed and anyone earning over £50,100 a year was then asked to repay one percent of every £100 over the threshold – those earning £60,000 plus were asked to repay it completely.

Critics of the tax say that it hasn’t been very well promoted and unfortunately this has led to some people receiving a tax bill of thousands of pounds, when they could have just opted out if they knew the rules.

Even now, hundreds of parents are not aware of this change and experts are concerned that more basic rate taxpayers will be hit by this charge over the coming years.

HM Revenue and Customs (HMRC) collected £409million from the HICBC in 2019/2020 and according to analysis from NFU Mutual, this was down three percent from the £421million the year before.

By August 2020 there were 624,000 families who had opted out of receiving Child Benefit indicating that the message is finally getting out.

READ MORE: DWP update: Major change announced to Universal Credit and PIP

The £50,000 threshold hasn’t changed since 2013, but child benefit payments are probably the last thing on people’s minds when they get a pay rise, so it could catch them out.

Sean McCann, a Chartered Financial Planner at NFU Mutual, said: “This dip in receipts from the High Income Child Benefit Charge is likely to be down to an increasing number of families opting out of child benefit altogether.

“The £50,000 threshold hasn’t changed since 2013 meaning more and more families are being caught as incomes increase.

“While some are choosing to repay the benefit, many more with incomes over £60,000 who lose all their child benefit through the tax, are opting out of receiving the payments altogether.”

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Should I still claim child benefit if my partner is on a higher income?

Opting out may be the easier option for many families who are earning over the threshold, but it’s important to listen to expert advice so that if one parent isn’t working, they still receive a National Insurance credit which will affect their entitlement to a full state pension.

To ensure this is not lost, the parent who isn’t working will still need to make a claim for Child Benefit but opt out of receiving any actual payment – it’s worth doing now so that the non-working parent doesn’t pay the price in the future.

Mr McCann explained: “It’s vital that the claim is made by the non-working payment, rather than the high-earning partner.

He added: “Families with non-working parents failing to register for child benefit could be counting the cost many years in the future.”

This guidance may need to be heeded by more families over the coming months as despite the Covid pandemic battering the economy, some people are seeing their wages rise, according to latest figures from the ONS.

While this in itself can only be described as good news, working parents could find themselves worse off if they get an unexpected tax bill.

And it’s important to remember that the threshold applies to someone’s Adjusted Net Income.

An individual’s Adjusted Net Income is the money they have left after personal allowances like pension deductions and they can increase the amount they pay into their pension to avoid losing out on child benefit.

In order to calculate whether their income is over the threshold, taxpayers will can go onto the Government’s Child Benefit tax calculator website.

If a person’s income is above the threshold, they will either get Child Benefit payments and pay any tax charge at the end of each tax year, or choose to waive Child Benefit payments.

Individuals who waive the payments can still complete the benefit claim form to claim National Insurance (NI) credits, which will benefit their state pension.

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