What To Do About The High Income Child Benefit Tax Charge

hello everyone today's video is all about the high income child benefit charge which basically means that if you earn above a certain amount you get the child benefit clawed back which is now done through the tax system so the the magic numbers are worth 50 Grand now what's very unfair about this is that if one spouse of a couple is paying is receiving income in excess of 50 Grand the amount is clawed back until which point you get to 60 Grand and you lose the whole thing now consider the situation where let's say you've got two spouses and both earn 49 999 pounds each so they've got a combined household income of a hundred grand give or take a couple of quid no clue back of uh child benefit for these guys however let's assume you've got another couple one spouse is on 60 Grand the other's on zero combined income of 60 to get a whole lot clawed back so quite an unfair uh quirking the rules there but anyway that's how it is so interesting um tax case in the courts recently the Wilkes case now what happened with this guy basically he said he got he got done for this because he but he didn't have to do tax return because one of the things in the UK not everyone has to do with tax return not like in America where everyone does one in the UK it's only um a what's a reasonable percentage is several million but not everyone has to do it so the point being that this guy just merrily went along his way for many years uh received a salary paye and he started earning over 50 Grand and still having pay Rises and what happened was because he didn't have a tax return he didn't know about the fact that this tell about if he got clawed back through the tax system he's not a he's not a tax return person who doesn't need to do one he was never issued with tax returns requirement to submit tax returns by hmrc all of a sudden gets a letter in the post saying oh uh Davis the Wilkes we've just looked at your records and we noticed that you have been um earning over 50 grand for quite a few years now and we're going to claw back all that lovely child benefit that you've received thank you very much she's like what you know anyway the whole thing snowballed and it got to the the courts the tax tribunals and the grounds were this let me talk you through the legal principles here so hmrc basically argued they said that they had made what's called a discovery assessment now a discovery assessment is something in the tax world where you a tax man basically discovers income that should have been charged to income tax but wasn't so that's what a discovery is and this thing was all about the technicalities of Tax Administration in the UK and the taxpayer Mr Wilkes and his advisors and barristers they said hang on a minute there is no income here to be discovered Mr hmrc you cannot all of a sudden say well we're going to invoke the provisions of the discovery Provisions because that talks about income that they've discovered here there's nothing that's been discovered the guys that earned the salary over so many years yes it's tripped them over the threshold for clawback of child benefit but technically there's no new income being discovered here and the discovery Provisions talk about income being discovered that previously wasn't known to hmrc which income tax thereon should have been paid and with this guy the court said look there's no new income here so you can't invoke income tax there can't be any tax charge or the clawback in this case of the child benefit because there is no income that's been discovered so the guy got away with it Mr Wilkes um he won he won in the courts and it went right up to various rounds of the course the first tier seconds here uh high court and basically the taxpayer won so then hmrc said well we're just going to change the change the rule we're going to go to the government and get the change the law and that's exactly what they did so the government changed the law to then make it the case that hmrc can go back several years and go after people who quite you know um took no follow their own didn't know that this rule was in because they don't have to do tax returns that they didn't know about it um and hmrc can go back several years and go after people who've received child benefit when they're earning too much so just be aware of this if you are or you or your spouse are a in receipts of child benefit and B earning over 50 Grand one of you earning over 50 Grand then this child benefit could be clawed back and it could be clawed back from several years ago based on the new statutory Provisions that were put in place by the government following hmrc's defeat in the Wilkes case right so moving on what can you do about it if you're in this situation well not like not a lot you can do retrospectively but going forward let's say right now in this tax year and we are in February 23 so we're about six weeks out from the end of the tax year and could be in a situation you could be in a situation where you are earning over 50 Grand and you're receiving child benefit in your family and you think well what can I do about I don't want to get clawed back well what you can do about it is this make a pension contribution a personal pension contribution from your savings your your net income your the your after tax income you put in a contribution to your personal pension and that will get you tax relief but for the purposes of the high income child benefit charge it reduces your taxable income accordingly so let's just take an example uh let's say you've got a guy who's on 55 000 so 55 000 they're going to start clawing back the child benefit you'll still keep some because it's it's a 60 Grand where you you get to keep some but anyways chlora the claw it back but what if you actually made a pension contribution of four thousand pounds so the way it works with the pensions and it's grossed up that four thousand pounds is deemed to be 5 000 pounds the gross amount so we write a check for four grand goes into his pension but it's grossed up to five grand and his adjusted taxable income is now fifty thousand goes from 55 down to 50. low and behold no clue back at all of the child benefit so that's the number one thing you can do there is another thing it's a charitable contribution and the work exactly the same but I'll be inclined to suggest that most people would rather put a chunk of change into their pension than give it to charity but however there are many philanthropic people out there and if you do want to put a decent whack into a charitable contribution exactly the same rules from tax point of view it will bring your taxable income down get you out of that band between 50 Grand and 60 if you're just over it and then you'll have no clawback so gifts to charity or topping up your personal pension to avoid the high income child benefit charge basically when you're you have to repay the child benefit that you or your spouse has received so I hope you like this video on the high income child benefit tax charge if you did please do remember to subscribe and as always I'll see you soon

Channel: Simon Gray

Views: 7,007

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Id: kkekZm7Jz7g

Length: 8min 19sec (499 seconds)

Published: Fri Feb 10 2023