More than seven (7.21) million families receive child benefit but 1.1 million of them who are earning over £50,000 are affected by the High Income Child Benefit Tax Charge. However, tens of thousands of parents are getting it wrong leading to “shock tax bills”.
Millions of families receive child benefit which is paid by HM Revenue and Customs (HMRC) to parents of children aged 16 and under, as well as those who stay in full time education until they’re 20.
Britons earning £50,000 or more can still receive child benefit but they are subject to a High Income Child Benefit Tax Charge.
However, complex rules mean that many are unaware of the charge and could be faced with a huge tax bill.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said the process is far too complicated.
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The Office for Tax Simplification has also said there isn’t enough information available to parents, so it’s not surprising they don’t understand the system.
Ms Coles added: “More to the point, even if they understand it at the outset, by the time they’ve waded through confusing forms, there’s a reasonable chance they’re thrown off track.”
Experts believe that part of the problem is due to the fact that Britons need to claim the benefit even if they opt out of receiving the money.
This ensures that people still receive national insurance credits towards their State Pension and that children still get a National Insurance (NI) number at 16.
Ms Coles is suggesting that HMRC comes up with a better solution so that parents aren’t penalised.
She said: “For those who manage to navigate the process, their reward is the horrible burden of completing a tax return every year, to work out how much they owe, and repay it.”
“Around half a million people go through the stress of a tax return purely for child benefit reasons.
“As the OTS pointed out, surely there’s a better way of doing this, without an enormous amount of wasted time and effort from both parents and the taxman.”
What is the High Income Child Benefit Charge?
Since 2013, if one of the parents earns over £50,000, they will pay the charge, which means paying back a chunk of their child benefit.
The amount someone repays rises with their earnings, until someone earning £60,000 repays it all.
Someone who repays it all can opt out instead.
To repay it, people need to complete a self-assessment form every year.
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