Until this year, Child Benefit was universally available; it wasn't means-tested. As of January, that changed.
Now, if the higher earner in a household has an income over £50,000, then the household loses some of its child benefit, and if their income is over £60,000 it's all lost. You lose the housing benefit on a sliding scale - if the higher earner's income is £51,000 you lose 10%, if it's £52,000 you lose 20% and so on.
For last year, only three months' Child Benefit is at stake (payment made to families between 7 January and 5 April 2013), so the financial loss isn't great. For the current year, a whole year's Child Benefit stands to be lost, so it's a much bigger deal. When you take into account income tax and the loss of Child Benefit, then the higher earner in a four-child family this year could suffer an effective tax rate of 73% on income between £50,000 and £60,000. Of that £10,000 of income, they'll only get to keep £2,700!
There are ways round it for some people. If you're on £60,000 you can bring your income for these purposes down to £50,000 by contributing to a pension, in which case the household won't lose any Child Benefit. Effectively for the higher earner in that four-child household it will cost £2,700 for to get £10,000 into a pension. That's potentially a great option - if you can do without the cashflow right now.
If you're resigned to losing all of your family's Child Benefit, you must either a) put details of it on a Self-Assessment Tax Return or b) just ask the government not to pay the Child Benefit in the first place. For anyone who doesn't have to do a Self-Assessment Tax Return already, the first option is the path of least resistance - though if your circumstances change and your income decreases, remember to ask the government to restart the payments sharpish! If you already have to do a Self-Assessment Tax Return, you could ask to not receive the payments, or you may prefer to receive them then give them back via the return, for reasons we've previously outlined.
If you're only going to lose some of the benefit, and you don't already have to submit a Self-Assessment Tax Return each year, you unavoidably have to register with HMRC to submit returns, which is a real pain. And that's what all the fuss has been about in the last few days. 5 October was the technical deadline for registering, and supposedly 150,000 such people have failed to register so far. In reality, it seems really unlikely that HMRC will impose any penalties for missing that date. It's not a special date for these purposes, it's just the date that you have to notify HMRC of *any* new taxable source of income so that they can issue you with a return for last year (so the same deadline applied to, for instance, someone who bought a rental property during the last tax year and will have to submit tax returns to show the income). We've never, ever seen a penalty issued for late notification for Self-Assessment and we've not heard of it anecdotally either. So if we were in the position of suddenly realising we needed to register for Self-Assessment and having just missed the deadline, we'd personally be relaxed about it.
However, anyone who leaves it much longer might genuinely find themselves with a problem (leaving aside the problem of having to find the money to repay the benefit. The deadline for submitting a return for the year ended 5 April 2013 is the end of January (assuming you're doing it online or an accountant is doing it for you). To submit a return you need a 10-digit Unique Taxpayer Reference number (UTR). You get the UTR once you've registered for Self-Assessment - but HMRC can be really slow at processing registrations, and occasionally seem to miss them entirely. So if you need to register for Self-Assessment for last year but didn't do it by the 5th October, there's probably no need to panic - but do get a move on, because you need to register miles in advance of 31st January to be sure of getting that UTR in good time.
There's not much accountants can do to accelerate this process - most clients of accountants already have to submit a return (hence having an accountant!) so shouldn't be among the 150,000. So we can only be interested spectators for the time being. We'll be ready for a few calls in January from people who've just realised what's going on, though!
Comments