More than a million families are facing big tax bills within weeks.
High-earning parents who claim Child Benefit are likely to be affected over the next financial year.
Finance experts say this little-known issue centers on what’s known as High Income Child Benefit Charge (HICBC), which was introduced in January 2013, reports the Mirror.
It’s a tax that applies to anyone who brings in more than £50,000 a year and receives Child Benefit, or whose partner claims it.
Child Benefit is a benefit open to anyone bringing up a child under 16, or under 20 if they stay in education or training, and is not dependent on income.
However, around 1.6 million families will be affected by the tax in 2022/23.
HM Revenue & Customs (HMRC) explained: “Anyone who has to pay the charge will need to pay an amount equivalent to some or all of the Child Benefit that they or their partner is entitled to receive.
“The tax charge increases gradually for taxpayers with incomes between £50,000 and £60,000.”
How much families pay depends on their ‘adjusted net income’ and how much Child Benefit they are allowed.
Adjusted net income is income minus any tax relief, pension payments and trading losses, if you are self-employed.
So, for every £100 that someone claiming Child Benefit earns over £50,099 a year, they have to repay one per cent of what they get under the benefit.
When they hit the threshold of earning more than £60,000, all the Child Benefit must be repaid.
For example, someone earning £50,100 a year would be eligible for £1,099.80 in Child Benefit and would have to repay £10.
Someone in the same position earning £51,000 would repay £109, and someone earning £60,000 would repay the full £1,099.
HMRC has a Child benefit calculator to help people work out their individual situation.
Recent research from NFU Mutual found that most people did not know they may have to repay their Child Benefit, with 84 per cent of respondents unaware of the existence of the High Income Child Benefit Charge.
Sean McCann, Chartered Financial Planner at NFU Mutual, said: “Many families don’t realize they have to repay some or all of their Child Benefit once the highest earner’s income exceeds £50,000. It’s not until the letter from HMRC arrives that they become aware.
“It can mean some end up with tax bills for thousands of pounds, and more families are getting caught by this tax each year as wages increase.”
HMRC said information on the tax was included in packs given to new parents about how to claim Child Benefit.
It said: “HMRC ran an external marketing campaign when HICBC (High Income Child Benefit Charge) was introduced and wrote to around 800,000 taxpayers letting them know of how they might be affected.
“It placed awareness adverts in national daily newspapers throughout November 2012. These adverts also signedposted to the HMRC website for more details of HICBC.”
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