Partner Article

Child Benefit Claw Back – A fine state of affairs

In recent years HMRC has, with cost-cutting in mind, tried hard to remove those with relatively simple tax affairs from the self-assessment system.

For employees, the PAYE system is so flexible that most people’s tax liabilities can be correctly collected without them having to complete tax returns.

HMRC’s policy has therefore been to write and advise employees with annual income of less than £100,000 that they do not need to be within self-assessment unless they have taxed investment income or gross rental income exceeding £10,000 or untaxed investment income or net rental income of over £2,500.

But this year has seen a significant change. In order to collect the higher income child benefit charge, couples with children where one partner earns more than £50,000 are now being advised by HMRC that they must register for a self-assessment return by 5 October or they will face a penalty under the ‘failure to notify chargeability’ rules.

They will then need to file a hard copy of the return by 31 October, or e-file by 31 January, or risk being fined again - this time under the regime for late tax return submission.

The first penalty deadline has now closed and people affected should now to register as early as possible. Those who plan to e-file need to bear in mind that in ‘normal’ years there is an appreciable delay between registration via the Government Gateway and receipt of an access code.

Given the large number of anticipated first time self-assessment filers, the system is likely to be swamped and the delay much greater.

Cynics might suspect that a significant increase in the number of taxpayers having to complete self-assessment returns might be an HMRC conspiracy to gather small amounts of additional tax on bank interest (and ‘windfall’ penalties) from unsuspecting taxpayers.

That is probably an unfair view as the burden of self-assessment is brought about more by a lack of forethought by HMRC’s political masters as to the practical consequences of the change in policy with regard to child benefit. Let’s see how HMRC copes and whether the department might consider waiving the inevitable penalties.

This was posted in Bdaily's Members' News section by Baker Tilly .