Profession braces for child benefit chaos

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Half a million new people will be required to complete a Self Assessment tax return for the year ending this April after the new high income child benefit charge (HICBC) kicks in.

Families with children and a parent earning more than £50,000 a year have a final chance this weekend to opt out of receiving child benefit or can continue to receive it and get drawn into the SA system.

The new charge applies from 7 January, and anyone wishing to opt out of receiving child benefit for the 2012-13 tax year must do so before that date.

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Robert Lovell
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04th Jan 2013 10:33

anti Avoidance

Is there anything about controlling shareholders living on capital while taking a small salary/dividends from the company? I seem to recall there is somehing along those lines for tax credits, but haven't seen anything for CB? If there is can someone point me at it?

 

thanks

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04th Jan 2013 16:29

Slightly surprised ...

... that there are that many on over £50K per year who do not already have to complete SA returns.  Sure, they are all on PAYE, but even so.

With kind regards

Clint Westwood

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06th Jan 2013 13:54

the "normal" limit for employees is £100k

have a look here for the criteria for filling out returns, which have been updated to reflect child benefit changes:

http://www.hmrc.gov.uk/sa/need-tax-return.htm

If you are already in SA I cannot see any difference between opting out and not paying and not opting out and paying.

HMRC have over the years since SA came in made some efforts to whittle down those who need to do returns. I cannot help wondering what the relative administrative costs of this measure are vs the money saved.

 

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By vince8
06th Jan 2013 14:07

Will it be easy getting detail from clients?

How well do you know your clients and family members? I'm not sure I know enough about their personal lives so need to think about getting information about Child Benefit. Do I ask them all or try to be selective based on known ages etc?

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07th Jan 2013 06:55

Anthony123 is quite right ...

... to describe in quotes the "normal" (and arbitrary) limit of £100K (and other qualifying conditions set out in the HMRC website and SA1 guidance notices).  This has no statutory basis and neither do most of the other qualifying conditions listed alongside.

It is a source of some frustration among regular posters in the Any Answers section of this forum that, without searching for earlier threads on the subject, the ill informed continue to propogate this myth by quoting HMRC's website rather than the legislation, which is embedded in s.7 TMA 1970, which makes no reference to a £100K limit, nor, for that matter (a more common cause of misunderstanding) company directors.

With kind regards

Clint Westwood

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07th Jan 2013 11:23

Opting out figures

Around 200,000 people out of the 1.2 million opted out of receiving child benefit, ahead of changes which came into force today.

Treasury Minister David Gauke said it was “slightly above” what was expected.

He told the BBC: “Something like 200,000 people have opted out, which is slightly above what we’d expected at this stage so there does seem to be quite a lot of awareness about it.”

HMRC chief executive Lin Homer added: “I think we have been very proactive. We have written to 800,000 people. 1.2 million is the estimate and of course things like people’s income changes during the year so we have written to everyone we know is affected by the change.

“Twice the number of people we expected to opt out have done so already so we are well ahead of where we expected to be at this point.”

“Because it has worked better than expected the administration charge of implementing this change we think is only going to be 50 per cent of what we expected. We think it will cost us £11m to raise the £2bn that this change will raise,” she added.

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07th Jan 2013 12:25

Anyone know where they got the 70% marginal tax rate from?

"Say your salary's approaching £60,000 and you've got two children, then your marginal tax rate's going to be somewhere around 70% which is fairly high"

I thought it was roughly an extra 10% on people between £50k and £60k, which equates to a 50% marginal rate. Can anyone enlighten me?

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By dwgw
07th Jan 2013 12:36

Maybe not 70% in this case?

brianheg wrote:

"Say your salary's approaching £60,000 and you've got two children, then your marginal tax rate's going to be somewhere around 70% which is fairly high"

I thought it was roughly an extra 10% on people between £50k and £60k, which equates to a 50% marginal rate. Can anyone enlighten me?

Two children means higher child benefit.  I read that it's (from memory) an effective 11% increase for the first child and 7% for subsequent children.  That would make it 58% in the example.

 

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07th Jan 2013 14:15

it could be 100%

dwgw wrote:

brianheg wrote:

"Say your salary's approaching £60,000 and you've got two children, then your marginal tax rate's going to be somewhere around 70% which is fairly high"

I thought it was roughly an extra 10% on people between £50k and £60k, which equates to a 50% marginal rate. Can anyone enlighten me?

Two children means higher child benefit.  I read that it's (from memory) an effective 11% increase for the first child and 7% for subsequent children.  That would make it 58% in the example.

 

If you have two children, the child benefit received is £1,752 per year.  A tax charge of 1% of this is incurred for every £100 your income exceeds £50,000: an addtional tax of 17.52%.  So, with higher rate tax at 40% and NI at 2%, your marginal tax rate is 59.52% - higher than the 52% the Government thought was too much for the very highest earners to pay.

If you have eight children and claim child benefit, your marginal tax rate on income between £50k and £60k will be over 100%. 

 

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07th Jan 2013 12:43

National Insurance Credits

It has earlier been noted that NIC credits (previously Home Responsibility Protection) is based on those claiming Child Benefit (ie you get an entitlement to your state pension due to the fact that you are not working as you are looking after children under the age of 12). It works on an auto enrollment system. By opting out of Child Benefit, you would loose your credits, which is not good for a non working wife/husband of a >£50k earner. It would be preferable to claim the CHB and repay it with SA.

Has there been a satisfactory way of solving the problem? And why has it not been addressed in the press?

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07th Jan 2013 12:41

Home Responsibilities Protection

I was at a training course recently and the presenter said that as long as CHB has been claimed at some point then HRP continues to accrue. Unfortunately, while he was pretty definite on the point, he didn't reference his view to any legislation.

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By 0106781
07th Jan 2013 13:11

Home Responsibilities protection was replaced on 6th April 2010 by "National Insurance Credits for Parents and Carers", but is still essentially the same thing. The eligibility comes from making the claim, not the receiving of the payment, so if you have made the claim in the past the eligibility to NICPC even if you opt out of payments. 

It is also important for any new child, you make a claim, even if you know you will not be entitled to payment. The following is from HMRC website about this subject...

 

"Fill in a Child Benefit claim form

You or your partner should fill in a Child Benefit claim form for your new child. This is because entitlement to receive Child Benefit:

can help you qualify for National Insurance credits that can protect your entitlement to State Pensioncan help protect your entitlement to other benefits such as Guardian's Allowanceensures your child is automatically issued with a National Insurance number before their 16th birthday

So you should still fill in a Child Benefit claim form even if you:

could be liable to the tax charge on some or all of the Child Benefit you or your partner are entitled to receiveagree to stop getting the actual payments instead of declaring them

The claim form will ask you if you want to receive your Child Benefit payments.

The Child Benefit Office will tell the person who filled in the claim form if they are entitled to receive Child Benefit." 

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07th Jan 2013 14:29

perhaps those families should

be considering the snip?.... 

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07th Jan 2013 15:16

or form a partnership

If I am self employed and earn £60,000, I pay about £17,500 tax NI and lose all child benefit.

If I take my non-earning spouse as a partner and we split the £60,000 between us, we save £5,000 in tax and keep all of our child benefit.

Is this immoral avoidance or sensible tax planning?

 

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07th Jan 2013 16:00

immoral avoidance

only if the spouse is not actually doing anything for the partnership...

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07th Jan 2013 16:10

Save some NI too

Wouldn't that make her a sleeping partner and exempt from Class 2 and 4 NI? 

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By Halex
07th Jan 2013 16:02

Thanks for the helpful advice Justsotax.

Sadly too late for those of us who have realised the full financial burden of those once so beautiful babies. But maybe useful to the poster quoting a family with 8 children. Can't think of any I know off-hand but doubtless they exist somewhere.

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08th Jan 2013 11:47

Football teams

Halex wrote:

Sadly too late for those of us who have realised the full financial burden of those once so beautiful babies. But maybe useful to the poster quoting a family with 8 children. Can't think of any I know off-hand but doubtless they exist somewhere.

A friend I had when I was little had 9 brothers, the theory being a football team was being formed by his mother.  The looks on their faces when baby 11 was a girl were akin to those of Henry the 8th and the average Chinese parent.

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By vstrad
07th Jan 2013 18:54

Somewhat defeatist ...

This article's headline seems a little defeatist. Why not "Profession braces for lots of new SA clients"?

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By imbs
07th Jan 2013 20:54

My thoughts exactly vstrad
Every cloud and all that!

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08th Jan 2013 11:32

.

Complexity is good for business from my point of view.  

Thank you HMRC I say!

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10th Jan 2013 14:57

New Business

 

You guys just love this. Hey look there's a new acronym to play with and scare people, lets all say hi to a HICBC. Rebecca (doesn't she know the Queen?) says it's a train wreck, I say it's another fee opportunity. At least Anita's honest I suppose.  Caught a little of "You and Yours" (I think) on R4 yesterday when they had the queens and toffs accountants on to advise. Thats ACA (not "ay-cee-ay" anymore apparently, or at least as I thought, but now "akah" and the ICAEW). Dear oh dear, how they can keep a straight face amazes me. This is all excellent news for them really as it directs a new cohort of clients their way - high earning PAYE'ers. What a wheeze. A good few more pages for a much needed new edition of Tolley's too I expect.  Henry George - Progress and Poverty. landvaluetax.org. Steve Keen, Debunking Economics. Mason Gaffney - Corruption of Economics.

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