This year was the 50th anniversary of the introduction of Value Added Tax (VAT) in the UK, but despite being around for so long, many businesses still find managing this tax too complicated. Unsurprisingly, more registered businesses than ever are now receiving penalties from HMRC for inaccuracies in their VAT returns.

A new VAT penalty system for submitting returns or paying tax bills late came into force on 1st January 2023, replacing the old regime and also applying to nil or repayment returns. HMRC is now issuing correspondence to businesses that have incurred VAT penalties under the new system – some of which may not be aware of their errors.

Frozen thresholds and inflation

The two primary factors that may be leading to businesses failing to meet their VAT obligations are high inflation rates and frozen tax thresholds. The registration threshold for VAT has stayed the same since 2017, so increased prices could push businesses over the £85,000 annual turnover threshold even if they haven’t grown in size.

This threshold is due to remain frozen until 2026, with more and more businesses expected to become liable for VAT over this time, even if inflation drops to 2%
by 2025. As this is predicted to raise an additional £1.4 billion in tax revenue by 2028, it’s essential for businesses to stay on top of their VAT liabilities to avoid penalties.

Similarly, the annual income thresholds for accounting methods have stayed the same for over a decade. Though the government announced intentions to adjust the cash basis scheme earlier this year, in the meantime, it’s very easy for businesses to mistakenly continue using the wrong accounting scheme for their income bracket.

Beware VAT penalties

With HMRC aiming to increase VAT revenue and shrink the tax gap, the risk of small businesses being penalised for VAT
inaccuracies will only get higher. The tax agency expects businesses to take responsibility for their own tax liabilities, and seek appropriate guidance if there is something they are unfamiliar with.

The new scheme introduced this past January runs a point-based penalty system for late VAT submissions and a percentage penalty system for late VAT payments. This can lead to a £200 penalty for not submitting returns on time, or up to 4% of the outstanding balance for an overdue tax bill (plus interest at the Bank of England rate +2.5% – currently 7.75%).

There are also fines of £100–£400 for failing to keep records and submit returns electronically through the Making Tax Digital
online portal, and penalties of £5–£15 a day until the digital records are updated. Online digital submissions have been compulsory for VAT
since November 2022, so HMRC is likely to be sceptical of excuses.

Additionally, should you make any errors in your VAT return, and HMRC believes this was a result of carelessness, you could receive a significant penalty. This could be up to 30% of the outstanding tax for lack of reasonable care, up to 70% for deliberate error, or up to 100% for a deliberate error that was also deliberately concealed.

Get help with VAT returns

To avoid incurring any of these penalties, you must be sure to submit complete and accurate VAT returns on or before the annual deadline, using Making Tax Digital compatible software (unless you have been granted an exemption by HMRC).

As this is the first year of implementing the new system, HMRC
may be willing to be more lenient towards genuine VAT errors – as long as these issues are corrected and any outstanding tax is paid as soon as possible.

The tax agency also has the discretion to suspend a VAT penalty for up to 2 years, after which it could be cancelled if the business has complied with specified conditions during this period, such as improved record-keeping.

Of course, it’s best to prevent this scenario from occurring by keeping accurate VAT records and submitting returns on time in the first place. If your business has trouble with this, you could use professional assistance with VAT management.

Here at gbac, we have a team of accountants in Barnsley that includes expert tax consultants. To arrange a bookkeeping and VAT consultation, give us a call on 01226 298 298, or email an enquiry to info@gbac.co.uk
and we will be in touch.

Since its introduction over 20 years ago, Research and Development (R&D) tax relief has helped to stimulate economic growth and boost employment by encouraging companies in the UK to pursue innovative investments.

However, there has been some concern that the level of exaggerated or fraudulent R&D relief claims is increasing. It’s believed that almost 20% of all claims are fraudulent, with non-compliance being a particular issue for small-value claims of £10,000
or less.

To counter dishonest applications, HMRC has introduced changes in the way companies must apply for R&D tax relief. To submit a claim, companies must complete another form in advance and provide extra information.

Additional information required for R&D forms

Any R&D claims submitted to HMRC for accounting periods starting on or after 1st April 2023 must be preceded by a claim notification. This additional form requires more information when reporting projects, qualifying expenditure, and company details.

Companies must submit the supplementary form before
filing their Corporation Tax return, as HMRC will simply remove the R&D relief claim from their tax return if the company files it without providing the additional required information first.

This must be submitted through an online portal – HMRC accepts digital submissions only, allowing the tax agency to process claims and check their validity much faster.

Claimants must supply much more expansive and detailed information than before to support their R&D tax relief submission. This includes VAT registration, Unique Taxpayer Reference (UTR), and PAYE reference numbers, the contact details of internal personnel involved, and technical breakdowns of qualifying R&D projects.

The latter requires in-depth reports of all direct and indirect R&D activities within the fiscal year, including answering specific questions about the scientific or technological field invested in, the baseline of planned advancements, and cost breakdowns.

Increasing the level of accountability expected from companies applying for R&D tax relief should help to prevent misuse of the scheme and make the process more streamlined, but it could take some adjusting for companies and their accountants.

Get help with submitting R&D tax relief forms

While a considerable amount of extra effort is needed to supply all the additional information required by HMRC, this enhanced measure should help to sift out fraudulent applicants, or those who haven’t provided enough detail about their R&D projects.

Complying with the more complex new rules could still be challenging for small-to-medium enterprises (SMEs) whose financial representatives may lack technical expertise about R&D. Those who aren’t prepared for the changes risk submitting inaccurate or incomplete information that could compromise the success of their claim.

Therefore, it’s a good idea for companies who plan to claim R&D tax relief to begin preparing as soon as possible. Keeping robust records and starting the process well in advance should ensure that the required information is readily available, and there isn’t a rush to complete the time-consuming form that could result in costly mistakes.

An easier way to ensure that your company is fully compliant with the latest requirements from HMRC and can secure the highest level of tax relief possible is to speak to a tax specialist. Here at gbac, our tax consultants can use our years of expertise in communicating with HMRC to make sure your R&D tax relief claim complies.

To learn more, get in touch with our Barnsley accountants
by ringing us on 01226 298 298 or emailing your enquiry to info@gbac.co.uk today.

On 3rd August 2023, the Bank of England increased the base interest rate from 5% to 5.25%, which also triggered an increase in HMRC interest rates for late tax payments and repayments. This rate will apply until the next review in November.

Increased bank interest rates mean increased tax revenue for the government, as more taxpayers will end up paying Income Tax on their savings because of the higher interest. Similarly, increased mortgage rates are driving up Capital Gains Tax takings.

What is the Income Tax impact of savings?

Currently, the personal savings allowance for annual interest earned on savings is £1,000 for basic rate taxpayers, which drops to £500 for higher rate taxpayers. There is no exemption for savings interest earned by additional rate taxpayers.

With many financial institutions offering up to 5–6%
annual interest rates for their savings and investment accounts, it would be easy for a higher rate taxpayer with savings of £10,000 or more to exceed their allowance and incur an unexpected tax bill.

This could mean that up to a million more people will end up paying tax on their savings interest income for 2023–2024 than the previous tax year.

If you could be at risk of paying more tax due to interest rate increases pushing up your savings income, there are a few things you could do to try and minimise your tax liabilities. For example, you could invest up to £20,000 a year in an ISA.

Alternatively, you could invest in premium bonds, though these do not pay fixed interest. You could win monthly tax-free prizes on these, but must be prepared to make little to no return, as this is always a risk with this type of bond agreement.

Why is Capital Gains Tax revenue increasing?

A recent rise in Capital Gains Tax (CGT) receipts has at least partly come from a surge of buy-to-let landlords deciding to sell up, pushed by uncertainty over the future of CGT.

Buy-to-let properties were a good choice when property prices were rising, mortgage costs were low, and cash savings accounts didn’t offer as much of a return. Now, these factors have reversed, with landlords preferring to try their luck by investing funds elsewhere.

Landlords who are selling up should take steps to reduce their CGT bills, such as:

• Claiming any qualifying expenditure
• Disposing of any investments standing at a loss
• Moving property into joint ownership with a spouse

These measures can alleviate some of the more punishing aspects of CGT charges.

Get tax advice from GBAC

It’s important to keep track of your savings income in consideration of your tax liabilities – if you owe tax on savings interest, this must be paid through a Self-Assessment
submission or deducted from your income through a PAYE tax code adjustment.

You can find more information about tax on savings interest on the government website. If you’re still unsure of whether you owe such tax or not and don’t want to wait to receive a letter from HMRC, you can always contact gbac for guidance.

Our team of accountants in Barnsley includes tax consultants
who can help you organise your financial accounts and provide professional tax advice.

To find out how gbac can help you reduce your tax liabilities while remaining fully compliant with HMRC, get in touch by calling 01226 298 298 or emailing info@gbac.co.uk.

Taxpayers who submitted 2021–2022 tax returns with provisional figures need to resolve these and provide the final figures by the end of November.

HMRC has been sending nudge letters to tax agents representing taxpayers whose provisional tax returns are still unresolved, and may also send them directly to unrepresented taxpayers who do not have an agent to manage their tax files.

While using provisional figures is sometimes necessary, submitting a high number of provisional tax returns can draw unwanted attention from HMRC, and leaving them unresolved could result in fines for failing to meet your tax obligations.

That’s why HMRC is also encouraging taxpayers and tax agents to get ahead by submitting 2022–2023 tax returns early – preferably with finalised figures.

Deadline for amending provisional figures

While an estimated figure is used as final when a more accurate figure cannot be provided, a provisional figure is a temporary placeholder for a more accurate final figure that should be submitted later when more information is available.

HMRC will be aware if your tax return contains provisional figures that are due to be amended, as you should have checked the relevant box when submitting it.

The tax authority is now requesting that those needing to update provisional figures should do so well ahead of the statutory deadline, which is 31st January 2024.

If you now have the actual figures to hand, you should submit an amended tax return by 30th November 2023. If you have yet to source the figures, you should aim to find them as soon as possible and submit them by 31st December 2023.

Should the missing figures be too old and impossible to obtain, it would be necessary to confirm to HMRC that the provisional figures are final.

These deadlines are not statutory, which means it is not compulsory to take action by these dates and you will not be penalised for missing them.

However, HMRC recommends taking action now to get ahead, giving more time to prepare your next return before the statutory deadline for 2022–2023 tax returns, which is also 31st January 2024.

File your next tax return early

Nobody wants to stress over filing last-minute tax returns, but it happens to many every year when workloads get heavier and record-keeping isn’t what it should be.

Getting your accounts in order and filing as early as possible will give you more free time to focus on business in the new year and ensures that you avoid a whole host of problems that can come with late or inaccurate tax return submissions.

Filing your 2022–2023 tax return sooner offers the benefits of establishing tax liabilities early enough to enable more accurate financial planning, receiving any tax refunds owed earlier, and allowing you to use a HMRC payment plan if you cannot pay your tax bill in full.

Guidance on Self-Assessment Tax Returns is available on the government website – or you can consult professional tax advisers like gbac for assistance with managing your accounts and submitting final tax returns.

Contact our Barnsley accountants by calling 01226 298 298 or sending an email to info@gbac.co.uk
to enquire about our tax consultancy services.

Recently, HMRC released new Income Tax liability statistics covering the tax years 2020 to 2021 and 2023 to 2024 – but what do the latest figures mean?

The table below lists the average Income Tax rate for the main taxpayer categories, showing the average percentage of income paid in tax by marginal rate in 2020 and the projected percentage for the current tax year.

These numbers project a 0.4% increase for basic rate taxpayers, but decreases of 1% and 0.3% for higher rate and additional rate taxpayers respectively.

At first glance, this seems like good news for higher and additional rate taxpayers, but it doesn’t necessarily mean that people are actually paying less tax.

What’s the story behind the Income Tax numbers?

HMRC’s explanation for these differences is the simple statement that average tax rates vary over time depending on taxpayer numbers, both overall and in each tax band, in addition to income growth and changes to thresholds and allowances.

Realistically, the average for basic rate taxpayers has increased because average weekly earnings have increased since 2020, while the tax-free Personal Allowance
has barely risen at all, pushing more earners into the basic rate band.

When it comes to the decreasing average for higher rate taxpayers, HMRC did not mention in their summary that the upper threshold for this tax band was higher in 2020. It has now dropped from £150,000 to £125,140, so those at the higher end were pushed into the additional rate band.

The lower starting point for the additional rate tax band means there are around twice as many taxpayers in this bracket than before, with those at the lower end pulling down the average due to their lower incomes.

With the Office for Budget Responsibility forecasting around 3.5 million people moving into a higher Income Tax band between 2023 and 2028 due to threshold and allowance freezes, it’s important to make sure you know what your tax liabilities are and how changing rates could affect you.

Do you need professional tax advice?

Do you know which tax band you fall into for the current tax year, and whether income changes could affect your tax liability? Do you have any concerns about your tax code?

If you need guidance on reviewing your tax situation and managing your liabilities, you can consult with our tax advisers at gbac. Our friendly team of accountants in Barnsley could help you to maximise your tax savings while maintaining compliance.

Contact us by phone on 01226 298 298 or send an email to info@gbac.co.uk to enquire about our financial services.

The Lifetime Allowance (LTA) was introduced over fifteen years ago, setting the maximum amount of pension savings that an individual could contribute to registered pension schemes before their savings would be subject to a tax charge.

As part of efforts to incentivise those who have retired or are planning to retire to return to work and boost the economy, the government has abolished this allowance – meaning workers can save more into their pensions without triggering the tax charge.

Though the LTA was scrapped in April this year, further changes were needed to support its removal and facilitate the taxing of lump sums and death benefits without it.

To this end, draft legislation and an accompanying policy paper have been published to set out the changes due to take effect from 6th April 2024. These include the introduction of a new lump sum allowance and death benefit allowance.

If the legislation is enacted, these will be the same as the previous LTA – which was frozen at £1,073,100 in 2020. There will also be significant changes to the taxing of death benefits when a pension saver passes away before they turn 75 years old.

Here is what we can learn from the policy document and how abolishing the LTA could affect the future of pension planning for many savers.

Lump sum death benefits

A beneficiary can typically receive tax-free lump sum death benefits if the deceased saver did not access the pension yet (known as uncrystallised benefits).

While the LTA has been removed, there will still be a cap to limit the amount that can be taken as a tax-free lump sum – which is set at the same level as the LTA.

The allowance is combined for tax-free lump sums and death benefits, meaning the amount available for a lump sum death benefit would be reduced by any tax-free lump sums the pension saver may have taken during their lifetime.

Before the LTA was scrapped, any excess over the £1,073,100
cap would be taxed at a high rate (55%). From next April, excess will be taxed at the beneficiary’s marginal tax rate. This means their Income Tax
rate will apply, which is likely to be much lower.

Whether lump sum death benefits were paid from crystallised or uncrystallised funds will no longer matter, as both count towards the lump sum allowance.

When there is more than one beneficiary, the allowance will be allocated between them to determine each beneficiary’s tax liability.

Income death benefits

The policy paper also proposes a new approach to taxing uncrystallised death benefits taken as income, either from a drawdown fund or annuity, which was not announced with the initial news about abolishing the LTA.

Previously, pension income was exempt from tax, as a drawdown arrangement would be a ‘benefit crystallisation event’ under the LTA, and the charge would not apply to funds received by beneficiaries within two years of the saver’s death under 75.

Now, it seems that withdrawals from a drawdown scheme inherited from a saver who passes away before 75 will no longer be tax-free from next April, with such pension income also becoming taxable at the beneficiary’s marginal tax rate.

As lump sums taken from the same uncrystallised funds would be completely tax-free if the amount was lower than the lump sum and death benefit allowance, this could push beneficiaries into choosing to take a lump sum even if income would have been a more suitable option for their needs.

We will have to await further information to find out whether this will also apply to death benefits from crystallised pension funds.

How will this affect your pension?

The policy paper on abolishing the lifetime allowance is available to read on the government website. As the legislation is still in the draft stages, further changes may be made before it is implemented in 2024 to 2025.

It will be essential for anyone who may be affected, including savers and their potential beneficiaries, to keep up with the latest developments as the legislation is finalised. Reviewing individual pension plans and protection levels is vital.

Regardless of the level of your pension funds, it’s a good idea to consult with a financial advisor to make informed decisions about what’s best for your retirement plans and for your beneficiaries in the event of your death.

If you would like to get ahead and maximise your pension planning, get in touch with gbac to discuss your options with our accountants in Barnsley.

You can call us on 01226 298 298 or email info@gbac.co.uk to get started.

The legislative rules that apply if a person dies without a Will, which set out who is responsible for the administration of their estate and who will inherit, are known as the rules of intestacy.

In England or Wales, the amount that the surviving spouse or civil partner can inherit under intestacy rules – the statutory legacy – has been increased from July 2023.

Under the Administration of Estates Act 1925 (Fixed Net Sum) Order 2023, the UK government has raised the statutory legacy sum
from £270,000 to £322,000.

The previous sum was set at the start of 2020 and would usually be due for review in five years, but this period can be overridden by inflation increases of 15% or more.

This means that the uplift applied from 26th July 2023
is actually several months late, and the government’s failure to keep up with the consumer price index in this regard could mean some inheritors would have lost out on thousands of pounds.

What is the statutory legacy for intestacy?

When someone dies without a legally valid Will, this is called dying intestate. Intestacy occurs when the deceased person’s assets cannot be clearly allocated.

It’s also possible for a person to die partially intestate if they have a Will that doesn’t account for certain eventualities, such as the intended beneficiary passing away first.

In cases like these, intestacy laws must be followed, which can be complicated and inflexible, and may not align with what the deceased would have wanted.

If the individual is survived by a spouse and children and did not leave a Will, they will be entitled to the statutory legacy. The spouse can directly claim their deceased partner’s personal effects and now up to £322,000 of their estate value.

It’s commonly believed that spouses inherit everything if their partner dies, but this isn’t always the case with intestacy rules. The spouse or civil partner will only be the sole beneficiary if the deceased did not have children.

If the deceased had children, 50% of the remainder of the estate (if any) above the statutory legacy amount also goes to the spouse and the remaining 50% will be divided equally between the children or their descendants.

The deceased’s children would inherit equal shares of the entire estate if the individual died without a spouse or civil partner. In all cases, if any of the children are under 18 years old, their share will be held in a Trust until they turn 18.

A provision for adopted children allows them to benefit from the estates of their adopted parents, but not the estates of their biological families. There are no provisions for the parents or siblings of anyone who dies intestate with a spouse and no children.

Why is it important to leave a will?

The statutory legacy increase will help the spouses of those who pass away intestate after 26th July this year, but having a Will means that your loved ones won’t have to rely on intestacy rules and any other changes that may be enforced in the future.

If you leave the distribution of your estate to the government, there are only certain circumstances that allow particular relatives to be beneficiaries, leaving nothing for other close relations. This means those not in a marriage or civil partnership – such as ‘common law’ partners and cohabiting couples – will not benefit from the statutory legacy.

Formalising your personal wishes in a Will gives you the choice to specify who should be entitled to your estate, including which elements and to which extent. This provides flexibility to divide assets amongst all your loved ones, including non-family members, who otherwise wouldn’t benefit under intestacy law.

When you create your Will, you can choose who to appoint as executors of your estate, speeding up the administration process and easing the burden on your family. In the case of intestacy, you and your family would have no control over the appointed administrators, who are unlikely to operate with your wishes in mind.

The intestacy rules also do not cater for care provisions for children under 18 – so, if you would prefer for specific guardians to take over parental responsibilities in the event of your death, you must write this into a Will.

Nobody knows what will happen in the future, so it’s essential that you don’t take anything for granted and expect your estate to be distributed a certain way upon your death without preparing a valid Will.

How will the statutory legacy change affect you?

The old intestacy rules will continue to apply to deaths occurring before 26th July 2023, while the higher statutory legacy entitlement will apply to deaths on or after this date. You can use the government’s online tool to check who inherits if someone dies without a Will in your circumstances.

As discussed above, the rules of intestacy don’t always reflect modern relationships and family arrangements, with the assets of those who die intestate potentially being distributed to people they wouldn’t have named as beneficiaries and/or incurring a more complicated Inheritance Tax bill.

The best way to ensure that your estate benefits the people who you want to inherit it, in the ways you prefer, and to minimise their tax burden, is to write a Will with the aid of professional tax-efficient planning. You may also want to hire a financial advisor to manage assets in a Trust.

At gbac, we have a team of accountants in Barnsley who could assist your estate management with tax planning and probate services. Get in touch by calling 01226 298 298 to arrange a consultation, or email any queries to info@gbac.co.uk.

At present, UK taxpayers who inherit properties located in the European Economic Area (EEA) can qualify for agricultural relief on Inheritance Tax in the UK.

However, since the UK left the EU, which the EEA is an extension of, the Inheritance Tax treatment of properties in the EEA is due to be brought in line with properties in the rest of the world – meaning EEA properties will no longer qualify.

The 2023 Spring Budget announced the government’s plans to change the geographical scope of Agricultural Property Relief (APR) and Woodlands Relief, restricting these Inheritance Tax reliefs to properties in the UK only.

Draft legislation has now been published confirming that this geographical restriction will be enforced next year from 6th April 2024.

This means that any property located in the Isle of Man, the Channel Islands, or non-EU EEA countries (Norway, Iceland, and Liechtenstein) will cease to qualify.

How are Agricultural Relief and Woodlands Relief changing?

Back in 2009, the Finance Act expanded the scope of both APR and Woodlands Relief to include property in the EEA to ensure compliance with EU law.

After Brexit, the UK government no longer has to comply with this EU law, so the new legislation will now reverse those measures and treat properties in the EEA the same as those anywhere else outside the UK for Inheritance Tax (IHT) purposes.

It will also reverse the expansion of APR to property in the Isle of Man and Channel Islands from the 1970s, removing this relief in line with the unavailable Woodlands Relief.

Agricultural Property Relief exempts land or pasture used for growing crops or rearing animals from IHT, applicable for both lifetime gifts and property inherited on death.

To qualify, the owner or their spouse must have occupied the property and used it for agricultural purposes immediately before the transfer of ownership for 2 years, or 7 years if the land was occupied by a tenant farmer.

To claim 100% relief, the owner must have farmed the land themselves, allowed someone else to use it on a short-term grazing licence, or let the land through a tenancy that began after 1st September 1995. Other cases will only qualify for 50% relief.

Woodlands Relief is not as generous, because it has stricter conditions and only covers growing timber on the land and not the land itself.

The inheritor liable for IHT can exclude the value of trees or underwood on the land from the value of the deceased individual’s estate if they had owned the woodlands for at least 5 years, but IHT will be due on profits from any timber sales.

Neither relief will be available for properties in the named areas from April 2024.

Who will be affected by these tax relief restrictions?

The changing legislation will affect UK taxpayers who own or inherit land or property occupied for agricultural purposes within the European Economic Area, the Isle of Man, and the Channel Islands, and trustees of trusts with an interest in such properties.

Transfers of value and other occasions where IHT is due in respect of these properties will no longer be eligible for the named tax reliefs from the date that the new legislation comes into force, but there are otherwise no changes to administrative obligations.

There is no indication that business reliefs will be restricted in the same way, so it could be possible to restructure agricultural interests to maintain eligibility. Most businesses will qualify for Business Property Relief (BPR).

However, as this isn’t available in all circumstances, the government is consulting on how APR
could be extended to environmental land management. The aim is to prevent landowners and farmers from avoiding sustainable farming and nature recovery schemes out of concerns over losing agricultural and woodland reliefs.

Get help with Inheritance Tax planning

If you own an estate or could be liable to inherit an estate that previously would have qualified for these reliefs, there are several options to explore before the new measures take effect next April, such as gifting land early or restructuring a business.

Detailed information about Agricultural Relief on Inheritance Tax can be found in a guide published on the government website, but if you own a property that is likely to be affected and are concerned about your tax planning, you may want to seek professional advice.

If succession and tax planning guidance would benefit your situation, please get in touch with the tax advisers at gbac. Our accountants in Barnsley could help you to mitigate the impact of losing these reliefs through tailored IHT planning.

Call us on 01226 298 298
or email enquiries to info@gbac.co.uk to find out more.

Though the High Income Child Benefit Charge (HICBC)
has been in place for ten years now, many parents or guardians may still be unaware of its requirements.

It’s effectively a tax applying to any parent or guardian who earns more than £50,000 a year and claims Child Benefit for a child living in their home.

To pay this charge, the individual must file a Self-Assessment Tax Return – but many employees don’t realise this, because they are used to having taxes deducted from their earnings automatically through the PAYE
system.

As a result of the lack of public awareness about the HICBC
rules, thousands of families could be hit by surprise fines and expected to pay back years of Child Benefit.

To address widespread criticism surrounding this issue, the UK government has stated that they will introduce changes to allow taxpayers to pay the HICBC through PAYE.

How does the HICBC work?

Parents and guardians in England and Wales can claim monthly payments from the government to help them with living costs for children in their care.

Child Benefit is available for any child until they are 16 years old, or up to 20 years old if they continue to live in the household while in approved education or training.

The rate is higher for the first child and lower for additional children, being £24 a week for the first child and £15.90 a week for subsequent children in 2023–2024.

As the government pays Child Benefit regardless of the parent’s or guardian’s income, the High Income Child Benefit Charge (HICBC) is their method for claiming the payments back from higher earners who do not need the financial support.

The charge comes into play when the individual claiming for their child, or their partner, earns an annual income exceeding £50,000. Whoever is the highest earner would be responsible for paying the HICBC, even if they weren’t the claimant.

For every £100 earned over this threshold, the government deducts 1% from their Child Benefit allowance – meaning that the charge reaches 100% and benefit eligibility becomes 0%
for those who earn £60,000 or above.

The charge could then require higher earners to pay back several hundred pounds a year – and if they fail to submit a tax return, HMRC can charge a penalty of up to 30% of the balance, as well as adding late fees and interest to the bill.

How is the HICBC changing?

The HICBC threshold has stayed the same since it was first introduced in 2013, so it has not been keeping up with adjusted Income Tax thresholds or inflation.

This has pushed more and more families into owing the HICBC
and losing benefit eligibility – with the latest data from HMRC
showing that the number of families claiming and receiving Child Benefit
is at its lowest since the charge was introduced.

With public knowledge of the HICBC system lacking, and wages rising in the last decade, it’s likely that hundreds of thousands of families could owe several years of Child Benefit repayments without even knowing it.

A backdated HICBC bill and late penalties can cause severe disruption to household budgets, even for higher earners, in a difficult economic climate. Perhaps this realisation has pushed the government to acknowledge the system is failing families.

In July, the Financial Secretary to the Treasury – Victoria Atkins MP – made a written Parliamentary Statement announcing the intention to simplify the process of paying the HICBC by enabling liable employees to do so through PAYE.

Further details will be provided in due course to explain how individuals can adjust their tax code to pay the HICBC through salary deductions. This would eliminate the need to register for Self-Assessment
and submit HICBC tax returns.

In addition to this time-saving measure that should prevent some families from falling foul of late filing penalties, the government is also due to announce how those who opt out of receiving Child Benefit
can get retrospective National Insurance credits to maintain State Pension eligibility, as announced on Tax Day in April.

Tax planning for the High Income Child Benefit Charge

Whether you claim Child Benefit for a single child or multiple children in your household, it’s essential to check whether the HICBC
applies to you (or your partner).

You can find detailed HICBC guidance on the government website, and use the Child Benefit tax calculator to estimate how much you might be liable for.

If it turns out that you should have been filing tax returns and paying the charge, it’s best to contact HMRC as soon as possible, as the tax agency may be more lenient if you comply after learning of your genuine mistake from lack of awareness.

It can also help to get professional advice on tax planning to reduce your HICBC liability, and assess whether it would be worth it to opt out of Child Benefit completely.

As this Child Benefit charge can become tangled with Income Tax and other benefits such as the State Pension, it could be helpful to contact our accountants in Barnsley to make sure you take the right steps for your family’s financial future.

Reach out to gbac by calling us on 01226 298 298 or emailing us at info@gbac.co.uk to learn more about how we can help with the HICBC.