The Fizz! Blog

Is it time to start claiming Child Benefit again?

There was a big change in the Budget to the High Income Child Benefit Charge (HICBC), which obliges high earners to repay Child Benefit via their Self Assessment Tax Return. Since the initial threshold for being a high earner (£50,000) was not changed for 11 years, more and more people were dragged into its net, most of whom would not have been considered high earners in 2013. At long last the thresholds have been increased, though. Previously, a household where the higher earner had income over £50,000 had to begin repaying the Child Benefit on a sliding scale - if their income was over £60,000, all of it had to be repaid. This year, HICBC doesn’t start until the higher earner has income over £60,000, and the sliding scale is more gentle - it’s not until income of £80,000 that the whole lot must be repaid.

In practical terms, many households with someone earning over £60,000 just opted not to receive the payments in the first place, knowing they’d only have to give them back again.

What do the changes mean in practical terms?

If the higher earner has income between £50,000 and £60,000

Hopefully, you’ve been claiming all along, because you’d only have to repay part of it via a Self Assessment Tax Return, and would still have been better off. Now, you won’t have to repay anything at all. If you were only in the Self Assessment Tax Return system for the purpose of paying HICBC, good news - you won’t have to submit tax returns any more.

If the higher earner has income between £60,000 and £80,000

You may well have stopped claiming, knowing you’d only have to repay the whole lot to HMRC in the end. You should probably start claiming again! Some of it will need to be repaid, but not all. If the higher earner isn’t presently submitting Self Assessment Tax Returns, they’ll have to start, though, so if you’re going to have to repay 95% of what’s been received it’d be understandable if you decided to carry on not claiming.

If the higher earner has income over £80,000

Nothing has changed - if you claim, you’ll have to repay it all.

Two final things:

1. Even if you know the higher earner will have income over £80,000, it’s still advisable to claim Child Benefit, but then opt out of the payments. A claim means that a primary carer will get State Pension credits (aka their National Insurance stamp) until the child is 12, and that the child will automatically get their own National Insurance number at age 16.
2. We say the charge is based on income, but it’s more complicated than that - for instance, benefits in kind need to be added on too, but personal pension contributions are knocked off the figure. Someone with a salary of £59,000 but company car and medical insurance benefits of £6,000 has income for these purposes of £65,000 and on that basis will have to repay 25% of the Child Benefit received - but if they make personal pension contributions of £5,000 that’ll take their income for HICBC purposes back down to £60,000, meaning no HICBC need be paid.

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Camping pods, and how tax can be grey

It’s nice to think that everything in tax is black and white.  As this recent questioner says of two accountants’ advice over a garden office, “But surely they can't both be correct. Either it's an allowable expense, or it's not.”  It’s genuinely not always as straightforward as that, though.  Our UK system is essentially principles-based, not rules-based.  Many things will be clear from the legislation, but some will not.  When something isn’t clear, some dispute between taxpayer and HMRC will eventually reach the courts, and then we might get a precedent, indicating the appropriate treatment.  But there’ll then be some other situation that’s similar-but-not-quite-the-same and the thing starts again.  Sometimes there’s no 100% correct answer, and both accountant and client have to weigh up the evidence and decide how comfortable they are with an approach.

The recent Acorn Venture Ltd case is a good example.  The taxpayer provided adventure holidays.  They housed kids in basic camping pods, and teachers in slightly less basic camping pods - the latter were plumbed in and had toilets.

The tax treatment of those things depends on what they are - broadly, were they moveable plant or were they buildings?  A taxpayer would like them all to be plant.  HMRC would like them to all be buildings.  In the end it was a draw - the kids’ pods were plant, the teachers’ pods (not moveable because they were fixed to the plumbing infrastructure) were buildings.

Some cautious accountants might have advised that they were all buildings, with a minimal tax deduction.  Some more gung-ho ones might have advised they should all be claimed as plant, with a much more generous deduction (of course, so might some accountants who were not technically aware enough to even realise there was an issue to consider in the first place).  A cautious client might have decided not to claim, a less risk-averse one might have been happy to go ahead.  The outcome of the case doesn’t in itself mean that an accountant who recommended a claim for the teacher pods would have been “wrong” in some objective way, as long as they explained the grey area to their client, the factors pointing in each direction, and the risks of HMRC looking at a contentious claim.  In fact, we need those accountants in order to get to the interesting and useful verdicts!

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HMRC 1 Honest Burgers 0

HMRC got a lot of stick for their actions in respect of the Honest Burgers chain a couple of months ago, but you can actually look at it another way and say they did a good job.

Honest Burgers had a Time To Pay arrangement to pay their taxes over an extended period of time.  They were negotiating to extend that, but talks fell through, and HMRC issued a winding-up petition in order to force Honest Burgers to pay up in full, the alternative being compulsory liquidation.  They received payment in full two days later.

It seems like the general reaction to this was surprise at HMRC’s sudden action.  However - Honest Burgers had the money!  They just wanted to use it for something else for the time being.  Maybe we should give HMRC a pat on the back for this one, for making sure they fund their business from commercial sources, not from hanging on to taxpayers’ money.

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