HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Office of Tax Simplification (OTS) published it’s ‘Life Events’ review policy paper in October this year. This follows its earlier reviews on ‘Inheritance Tax’ and ‘Everyday Tax for Smaller Businesses’. All these reviews call for more simplification.
“Death, taxes and childbirth! There’s never any convenient time for any of them”- Margaret Mitchell
We take a look at one area of the life events looked at:
For many people, their tax is usually dealt with under the PAYE system, so it is only when something significant changes in their lives and/or circumstances that they need to think actively about tax.
Having children is one area where high income households could unwittingly be missing out.
The High Income Child Benefit Charge
For high income households, were an individual or their partner has income over £50,000 a year, the high income child benefit tax charge applies if you take your child benefit. It claws back a proportion of the child benefit, rising to the full amount if the person’s income is over £60,000.
New parents have a lot to get their heads around when a baby arrives. It is not surprising that completing a child benefit application form may get pushed to the bottom of the pile and for many high earners, simply avoiding the complexities of tax reporting by not claiming child benefit at all, would seem a perfectly reasonable course of action – especially in cases where they will ultimately have to repay it all anyway.
However, this can mean they could unwittingly lose out on national insurance credits towards their state pension, and that their child will not automatically receive a national insurance number when they turn 16. This, in turn, could mean that they won’t pay the right amount of tax until they arrange to get their NI number issued.
These problems can be sidestepped, as guidance points out, by first making a child benefit claim, but then choosing not to receive payment of it.
Many people need, or choose to get, help dealing with their tax affairs and whilst tax evasion is not to be advocated, tax mitigation is an essential part of financial planning and can ensure you don’t pay more tax than you have to.
You can read the full findings of the OST here: https://www.gov.uk/government/organisations/office-of-tax-simplification