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Paying the high income child benefit charge

Written by admin on . Posted in Employment Tax, High Income Child Benefit Charge, self-assessment. No Comments on Paying the high income child benefit charge

From this summer, employed taxpayers who have to pay the high income child benefit charge (HICBC) will no longer need to complete a self assessment tax return. Instead, they can report the charge using HMRC’s new online service.

When the HICBC is payable

The HICBC only comes into play when an individual – or their partner – receives child benefit and their annual income exceeds £60,000. This means:

  • The charge removes 1% of child benefit for every £200 of income over £60,000.
  • Once income reaches £80,000 the charge is 100%, so the amount of child benefit is essentially reduced to nil.

For those with several children, the HICBC can result in a high effective marginal tax rate.

For 2025/26, child benefit of £26.05 a week is paid for a first child, with £17.25 a week paid for each subsequent child.

New online service

 Employed taxpayers will be able to use HMRC’s new digital service to report the amount of child benefit received. This will give them the option of paying the HICBC through PAYE:

  • Unless the taxpayer has any other income or chargeable gains, there will be no need to submit a tax return following the end of the tax year.
  • Taxpayers who are required to file a tax return for another reason will still need to report the HICBC on their return.
  • Anyone who has previously submitted a tax return needs to be careful because HMRC will continue to issue a notice to make a return. Penalties will be incurred if the notice is ignored.

It remains to be seen whether the new online service will alleviate the problems associated with the HICBC. One of the main issues continues to be a lack of awareness, despite the charge being in place for more than ten years. Also, most employed taxpayers are not used to dealing with HMRC.

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New tax year planning

Written by admin on . Posted in Budget, Company Director, Employment Tax, High Income Child Benefit Charge. No Comments on New tax year planning

The start of the new tax year warrants as much planning as the end of the old tax year.

While the end of the tax year on 5 April is a major focus of tax planning, it doesn’t end there. The following day may require much less immediate attention, but there is an argument for considering it to be just as important. For example:

  • Personal allowances The personal allowance for 2025/26, the new tax year, remains at £12,570, the same as it has been since 2021/22. Above that level, income tax will normally enter the equation. If you (or your spouse/civil partner) do not have enough income to cover the personal allowance, then you could consider transferring investments between yourselves so that the income generated escapes tax. You should also consider whether or not to claim the marriage allowance if your partner pays no tax and you pay no more than the basic rate (or vice versa).
  • At the opposite end of the income scale, once your income (after certain deductions) exceeds £100,000, you start losing your personal allowance at the rate of £1 for each £2 of excess. In those circumstances, a transfer of investments and the income generated can also make sense – this time by reducing your taxable
  • Other tax allowances and bands Similar principles apply to other allowances, such as the personal savings allowance (up to £1,000), the dividend allowance (£500) and the thresholds of tax bands. It is much easier to shuffle around future income at the start of the tax year than attempt to do so as 5 April looms near.
  • High income child benefit charge (HICBC) If you or your partner (marriage is irrelevant) have income (after certain allowances) of over £60,000 and both claim and receive payments of child benefit, then whichever of you has the higher income is taxed on that benefit. The tax charge is 1% of the child benefit for each £200 of income over the £60,000 threshold, meaning the tax matches the benefit at £80,000. If you have two children, this is equivalent to an extra 11.26% added to your marginal tax rate. Shifting your investment income could therefore save tax, even if you both pay the same marginal rate of tax.

For more details on these and other new tax year opportunities, please talk to us – as with year-end planning, the sooner, the better.

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Making Tax Digital latest

Written by admin on . Posted in High Income Child Benefit Charge, Making Tax Digital, MTD. No Comments on Making Tax Digital latest

Although Making Tax Digital (MTD) for the self-employed and landlords is still more than a year away, the October 2024 Budget further extended its scope with the announcement that it will apply to those with income between £20,000 and £30,000 before the end of this parliament.

MTD timeline

With the latest announcement, the MTD timeline for the self-employed and landlords now looks like this:

  • 6 April 2026: Those with an income of more than £50,000 for the 2024/25 tax year.
  • 6 April 2027: Those with an income of between £30,000 and £50,000 for the 2025/26 tax year.
  • Before the end of this parliament: Those with an income of between £20,000 and £30,000 for the tax year prior to the year of mandation.

It is very important to appreciate that the various mandation levels are based on gross income, and not on net profit after expenses have been deducted.

More significant than what was actually announced was what was left unsaid: that the government appears to be fully committed to the implementation of MTD from April 2026 without any further postponement.

Outstanding issues

One of the main concerns is that the testing of MTD by HMRC is still relatively small scale. Until recently, there was a lack of compatible software and a long list of exclusions of those who cannot currently sign up to use MTD voluntarily, e.g.:

  • those paying the high income child benefit charge;
  • anyone claiming the marriage allowance; and
  • those with income from a trust or jointly owned property.

There is still no confirmation on how MTD will work in practice for those with jointly owned property. At issue is that each owner will be expected to keep their own digital records and submit separate quarterly updates – something that will be impractical in many cases.

HMRC’s guidance on if and when you will need to use Making Tax Digital can be found here.

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From new year to year end – time to keep a tax-planning resolution?

Written by admin on . Posted in Capital Gains Tax, High Income Child Benefit Charge, Inheritance Tax. No Comments on From new year to year end – time to keep a tax-planning resolution?

As 2025 gets under way, it is once again the time of year to start considering your tax year-end planning.

The early months of the year are the time to undertake year-end tax planning. Unsurprisingly, the traditional drivers have been the tax year-end (Saturday 5 April 2025) and the Spring Budget. On this occasion, after last October’s blockbuster, there is no Spring Budget, although Rachel Reeves will deliver a Spring Forecast in late March. In the wake of that Autumn Budget, there is plenty to consider:

  • Pension contributions: The Budget announcement that pensions will fall within the scope of inheritance tax (IHT) from 2027/28 makes the review of pension contributions slightly different from previous years. For most people, pensions remain a highly tax-efficient way of saving for retirement, but for the wealthy few unconcerned about retirement income, they are no longer the estate-planning tool of choice.
  • Capital gains tax (CGT): Capital gains tax rates increased in the Budget to 24% for higher and additional rate taxpayers and 18% for other taxpayers. If you have not used your annual exemption – now just £3,000 of gains – you should consider doing so after what has been a generally good year on the world’s stock markets.
  • IHT: Now is the time to use your annual exempt amount (£3,000 per tax year) for 2024/25 if you have not already done so. If you did not use your full exemption from 2023/24, you can also gift the unused element after you have exhausted this year’s exemption.
  • Marriage allowances: If you or your spouse/civil partner had income below the personal allowance in 2020/21 (£12,500), you have until 5 April 2025 to claim the marriage allowance for that year (£1,250), which could produce a tax saving of up to £250. A claim can only be made if the other partner was a basic rate taxpayer (starter, basic or intermediate rate in Scotland) in that tax year. The same principle applies (with an allowance of £1,260) for 2021/22 and subsequent years onwards.
  • Threshold planning: The long-term freezes that have applied to income tax allowances and many thresholds may mean you move into a higher tax band in the coming tax year. Equally you could find yourself crossing the unchanged £60,000 threshold for the high-income child benefit charge or the £100,000 threshold for personal allowance taper and loss of tax-free childcare. Among the strategies to beat the unmoving thresholds, you could bring forward income into 2024/25 (e.g., by closing an interest-paying account) or move some income-generating investments across to your (lower income) spouse or civil partner by 5 April.

It is best to seek advice before taking any action – in tax, errors can be costly and difficult to unwind.

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Unclaimed child trust funds

Written by admin on . Posted in High Income Child Benefit Charge, Wealth. No Comments on Unclaimed child trust funds

With around 670,000 child trust fund (CTF) accounts sitting unclaimed by Generation Z adults aged between 18 and 22, HMRC is concerned.

CTFs were opened for every child born between 1 September 2002 and 2 January 2011, with each account started off with a £250 voucher (£500 for low-income families). A similar amount was added for any child who turned seven by 31 July 2010. That means all CTFs hold some money; in fact, each unclaimed account has an average of £2,200.

Given that nearly 30% of CTFs were set up without any parental involvement, it’s no surprise so many account holders are unaware of a CTF’s existence.

Tracing a CTF

A CTF will be held by a bank, building society or other savings provider. The number of providers has shrunk, with some merging and others exiting the market, meaning many CTFs will now have a different provider to when the account was set up. There are two free tracing options for anyone who does not know their CFT provider:

  • HMRC’s tool; or
  • The approved tool from The Share Foundation.

Only a few details are required for either tool, although anyone searching for a CTF provider will need the account holder’s National Insurance number and date of birth.

HMRC are advising account holders to avoid the use of third-party agents who offer to search for missing CTFs. They will always charge for this service, even as much as 25% of the value of the account.

Fund options

Funds remain in the CTF account until the holder reaches 18, with no one else having access. At age 18, the account holder can either:

  • Withdraw the funds; or
  • Transfer the money to an individual savings account (ISA).

If the funds are not immediately required, there are currently some attractive interest rates on offer for two- or three-year fixed rate cash ISAs. ISA charges will normally be lower than those for a CTF, with higher rates of interest available. HMRC’s guide to child trust funds can be found here.

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Child benefit charge changes confirmed

Written by admin on . Posted in High Income Child Benefit Charge, self-assessment. No Comments on Child benefit charge changes confirmed

Taxpayers will benefit from the changes made to the high income child benefit charge thanks to all tax measures from the March 2024 Budget being enacted before parliament was prorogued.

Changes to benefit charge

For 2024/25, the high income child benefit charge (HICBC) does not apply until income exceeds £60,000, a £10,000 increase from the previous threshold of £50,000. This means:

  • A parent earning £60,000, who would previously have lost all of their child benefit claim, now keeps the entire amount.
  • The rate of withdrawal is halved, so child benefit is not fully withdrawn until an individual’s income reaches £80,000 (previously £60,000). The charge now removes 2% of child benefit for every £100 of income over £60,000.
  • Once income reaches £80,000, the charge is 100%. Therefore, the child benefit claim is effectively reduced to nil.

Despite the changes, the HICBC can still mean a high effective marginal rate of tax.

Calculating income

A recently lost appeal to HMRC shows the importance of correctly calculating income for threshold purposes.

The taxpayer’s basic salary did not exceed the former HICBC income threshold of £50,000, but for the seven years under investigation he had overlooked the taxable benefit from having a company car. This was sufficient to take income over £50,000, so the charge was payable.

Taxpayers therefore need to be particularly careful when calculating income:

  • Savings income is likely to be much higher than previously given increased interest rates. The gross amount is included, ignoring the £500 savings allowance.
  • Dividend income, including reinvested dividends, has to be included ignoring the £500 dividend allowance.
  • Income from a lodger within the £7,500 exemption is ignored, as is any income within an individual savings account.

The gross amount of pension contributions and gift aid donations reduce the income figure, providing a useful tax planning opportunity where income is between £60,000 and £80,000.

Don’t forget to extend child benefit claims for 16- to 19-year-olds who continue in approved education or training. This can be done online or using the HMRC app.

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Increased income – the double-edged sword

Written by admin on . Posted in Benefits, Employment Tax, High Income Child Benefit Charge, Income Tax. No Comments on Increased income – the double-edged sword

With tax bands and other thresholds frozen, taxpayers should be aware of the implications of their income increasing. Increased income can mean more than facing a higher tax bill.

Higher rate taxpayers need to look at which allowances, reliefs or benefits are no longer claimable and those which are now worth claiming.

Lost reliefs

  • Marriage allowance – this is not available once the recipient spouse/civil partner becomes a higher rate taxpayer. The person who made the claim (the lower income spouse/civil partner) should now cancel it on their Government Gateway. However, one way to retain the allowance is for the recipient to make sufficient pension contributions so that their net income remains within the £50,270 basic rate threshold.
  • Child benefit – this starts to be clawed back once income hits £50,000 and is completely lost if income reaches £60,000. Within this band, each £1,000 of extra income represents a 10% loss of child benefit. The claw back is by way of a tax charge, with details declared on a self-assessment tax return. Again, pension contributions can reduce the level of income.
  • Childcare – if income exceeds a £100,000 threshold, tax-free childcare will no longer be available. Full free hour entitlement will also cease. Both must therefore be cancelled, with the tax-free childcare entitlement amended on the claimant’s Government Gateway. Pension contributions can, once again, help to remain below the threshold.

Using pension contributions

Pension contributions are more attractive once relief is at a higher rate than just the 20% basic rate. Contributions make even more sense if entitlement to marriage allowance, child benefit or childcare is preserved. Given that the personal allowance starts to be tapered away at the same point that tax-free childcare is lost, the overall cost of pension contributions where income just exceeds £100,000 can be negligible.

Tax trap

Aside from the increased rate of tax when income crosses a threshold, the savings allowance is cut in half to £500 for higher rate taxpayers. This is lost altogether once income reaches £125,140. Tax on savings can therefore increase despite the amount of savings income not changing. Investing in Individual Savings Accounts (ISAs) can mitigate the problem, as can pension contributions particularly if income is above the £50,270 threshold.

There are different childcare schemes in Scotland, Wales and Northern Ireland, and Scottish tax rates and thresholds differ.

For information on tax relief for private pension contributions visit the government website.

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Handy hints ahead of self-assessment

Written by admin on . Posted in benefit-in-Kind, Company Car Tax, High Income Child Benefit Charge, self-assessment, Self-Employed. No Comments on Handy hints ahead of self-assessment

The 31 January 2024 deadline for submitting a 2022/23 self-assessment tax return is not far off, especially for those not yet registered.

Anyone who has not previously registered for self-assessment – but needs to submit a tax return for 2022-23 – should do so as soon as possible.

  • A self-assessment activation code can take a week to arrive (three weeks if overseas); and
  • It can take two weeks (again, three weeks if overseas) to obtain a unique taxpayer reference, although using a personal tax account or the HMRC app can speed things up.

For anyone who has not previously submitted a tax return, the deadline for informing HMRC of the need to do so for 2022/23 has already passed. Individuals who have missed the deadline might face a fine.

First-time registration

There are a number of reasons why a taxpayer might fall into the self-assessment system for the first time. For example, anyone who has:

  • Started part-time self-employment, including work in the gig economy, trading on eBay and similar websites, or earning money as an influencer (although the first £1,000 of self-employed income is exempt);
  • Disposed of cryptoassets (any profits are subject to capital gains tax); or
  • Rented out property for the first time, possibly through sites such as Airbnb (again, the first £1,000 of rental income is exempt).
  • Become liable to the High Income Child Benefit Charge as a result of their income exceeding £50,000.

Sooner rather than later

Leaving registration to the last moment will mean there is no time to deal with any unforeseen problems. You might need to consult HMRC’s self-assessment helpline, which is now available again after its summer closure.

There will also be little time before the related tax bill is due for payment, and this could be an issue if the amount payable is higher than expected.

More information about whether you need to submit a self-assessment tax return can be found here.

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New PAYE process for High Income Child Benefit Charge

Written by admin on . Posted in High Income Child Benefit Charge, HMRC Investigations, Income Tax, PAYE. No Comments on New PAYE process for High Income Child Benefit Charge

One of the many criticisms aimed at the High Income Child Benefit Charge (HICBC) is that anyone caught by the charge needs to submit a self-assessment tax return even if all of their tax is collected under PAYE. However, this is set to change.

The government has announced that employed individuals will, in future, be able to pay the HICBC through their PAYE tax code without the need to register for self-assessment. The statement in July on draft Finance Bill legislation from Victoria Atkins, the Financial Secretary to the Treasury, didn’t give a date for the change, but said details would be released “in due course”.

The change will be particularly welcome for those earning just over £50,000 who have to go through the self-assessment process just to report and repay a small amount of child benefit.

Child benefit

For 2023/24, child benefit of £24.00 a week is paid for a first child, with £15.90 a week paid for each subsequent child. Child benefit is paid regardless of income, so the HICBC is the government’s way of reducing the amount paid to higher earners.

The charge

The HICBC can come into play when an individual – or their partner – receives child benefit and their annual income exceeds £50,000.

  • The charge removes 1% of child benefit for every £100 of income over £50,000.
  • Once income reaches £60,000, the charge is 100% so the amount of child benefit is essentially reduced to nil.
  • For those with several children, the HICBC can result in a high effective marginal tax rate.

For 2020/21, some 355,000 individuals were hit by the charge, with a high proportion having been subject to compliance checks by HMRC for failing to register for self-assessment. Despite the HICBC being in place since 2013 – and with HMRC running various publicity campaigns – there is still a general lack of awareness.

Although HMRC has adopted a more lenient attitude towards HICBC penalties in recent years, the maximum penalty can potentially be equivalent to the amount of HICBC owed.

Detailed government guidance on the HICBC can be found here.

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Childcare support extended to children over nine months

Written by admin on . Posted in Benefits, Employment Tax, High Income Child Benefit Charge, self-assessment. No Comments on Childcare support extended to children over nine months

The government is extending the provision of 30 hours of free childcare for 38 weeks to now include all pre-school children over the age of nine months.

Phased introduction

The extended childcare provision will be of benefit to parents with newborns ­– or those planning a family – but parents with children currently aged one or two years old will not see the full benefit of the changes because of the phased introduction of the support:

From Free childcare extended to Amount of childcare
April 2024 Children aged two years 15 hours
September 2024 Children aged nine months to two years 15 hours
September 2025 30 hours

Children can take up their childcare place in the term after they meet the age requirement (subject to having received a code to give to the childcare provider), with terms typically beginning on 1 January, 1 April and 1 September.

To be eligible, both parents must work at least 16 hours a week at the National Minimum/Living Wage, and neither can earn more than £100,000 a year.

Challenges and shortfalls

Government-funded childcare entitlement is currently only available for a total of 1,140 hours a year, which works out to 30 hours over 38 weeks, so the new rules may spur some adjustments by children providers.

  • Providers may simply offer fewer hours a week to stretch the funded hours over the whole year; or
  • They may provide 30 hours for the whole year with parents paying for the shortfall of unfunded hours.

In theory, the changes will help parents who want to go back to work but finding an available childcare space will likely continue to be problematic, even with the September 2023 child-to-staff ratio increase from four to five. Many nurseries are encountering financial difficulties, and the childcare extension will mean providers cannot make up shortfalls by charging more for younger children.

There are different schemes in Scotland, Wales and Northern Ireland.

Government guidance on help with paying for childcare can be found here.

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