Penalties For Parents Cancelled
Parents of young children are entitled to support from the government through Child Benefit. However, in January 2013, the government decided that those on higher incomes did not need these additional funds to support their children. Instead of introducing a check on income when benefit is originally claimed, they introduced the Higher Income Child Benefit Charge (HICBC) instead. Where the highest earner in a household has income of more than £50,000, then the benefit starts being clawed back through the tax return system. When income hits £60,000, the full amount claimed is repayable. Where someone knows they will exceed the limit, they can opt to forego receiving Child Benefit in the first place.
Whilst the idea that high earners do not have a financial need for Child Benefit has some merit, the means of addressing the issue has left something to be desired. Many couples prefer to keep their finances separate. Because of this it can be hard to tell which is the higher earner and hence due to make any repayment. It is even possible that a high earner would not be aware their partner is receiving Child Benefit. This is further complicated by the HICBC applying regardless of any relationship between the child and the high earner. A child for whom Child Benefit is being claimed simply has to live in the same household for the HICBC to apply. A change in circumstances can also bring about a surprise bill, such as when a new job takes income over the threshold in the same tax year as Child Benefit has already been claimed.
But by far the biggest problem has been that the HICBC can only be repaid through a self assessment tax return. Those already completing tax returns were alerted to the charge by new entries to be made on the forms. However, where someone was simply in a well-paid job, they had no historical need to complete a return. Whilst there was a reasonable amount of publicity early on, awareness has waned since, leaving many not knowing a return is required.
As a result, many unsuspecting individuals have been hit with penalties for failure to notify HMRC of their liability to pay HICBC. Having been hit with these penalties out of the blue, many have sought to challenge their validity in the tax tribunals. After facing a number of similar cases, HMRC have now reviewed these penalties and cancelled penalties in 6,000 cases. This includes 4,885 where the penalties had been paid, resulting in refunds to the affected individuals.
Whilst this is a welcome result, this is very much seen as a one-off exercise by HMRC. If you or your partner are a high earner, and you have children, it would be advisable to take professional advice on how this affects you.
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