High earning parents receiving child benefit need to complete a tax return and pay any tax due by 31 January if they have not had the tax collected via PAYE. Failure to do so will mean fines will apply. However, there are ways to reduce the tax, claim refunds if already overpaid and for those who have waived payment of it to restore tax free child benefit.
What Is High Income Child Benefit Tax?
Child Benefit is payable to the parent or guardian of children under 16, or 19 if in full time education. The eldest child receives £21.05 per week and younger children £13.95. For most people it is a tax free and non means tested benefit.
Where one adult in the household has taxable income in excess of £50,100 per year, child benefit is taxed at 1% for every £100 of income over £50,000 until it is taxed at 100% once income exceeds £60,000.
Employees have the option of paying the tax via PAYE but to do so must inform HMRC by 5 October in the tax year following. Those who missed this deadline must submit a tax return and pay the tax by 31 January after the end of the tax year.
Reductions from Income
Before paying the tax consider whether there is scope to reduce the income which counts towards the £50,100- £60,000 threshold. This could include deduction from income for:
• Charitable donations made under the gift aid scheme
• Pension savings made personally by the taxpayer
Charitable donations made with gift aid increase the value of the gift for the charity but also give higher rate taxpayers additional relief by reducing the income which is taxable. Gifts made last year can be deducted from income for the tax year 2019-20. Charitable gifts made in the current year can be claimed in the previous one too, this could be beneficial if income has fallen this year.
Pension savings made by the individual also reduce taxable income. Pension savings made by the self employed and by employees into their own private pensions give 20% tax relief at source.
Yet those with income over £50,000 (£43,430 in Scotland) are entitled to an additional 20% (21% if Scots resident). For members of workplace pensions, it is worth checking with the scheme whether all relief has been given via payroll and if not claiming the extra through a tax return. Claims may be backdated for four tax years.
Already Paid High Income Child Benefit Tax or Waived the Benefit?
Parents who have already paid the tax through PAYE adjustment or have waived payment of child benefit may wish to reverse that if their income has fallen this year.
With only 3 months to go to the end of this tax year, if income looks likely to be below £60,000, claiming the benefit now may be worthwhile as payment can only be backdated for 3 months.
Saving the excess income over the £50,100 threshold into a pension plan before 5 April would enable child benefit to be claimed tax free once more as well as yield tax relief at 40% (41% Scotland). Parents who find it difficult to save for retirement while bringing up a family, need to consider how pension savings could increase their eligibility for tax free child benefit.
For help with retirement savings and other tax efficient ways of saving please contact your usual LEBC adviser or email firstname.lastname@example.org or telephone 0800 0556585.
Public Policy Director
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