We embark on today's episode of the I Hate Numbers podcast with a mission: to demystify the complexities surrounding the "Higher Income Child Benefit Charge." This financial obligation affects individuals or couples with a combined income exceeding £50,000, leading to a potential clawback of child benefits.

Unpacking the £50,000 Limit

To comprehend the implications, we must first grasp the significance of the £50,000 adjusted net income threshold. This term, adjusted net income, is vital in determining eligibility. It encompasses various income sources—self-employed profits, rental income, and PAYE earnings—while factoring in deductions like gift aid contributions and losses from prior years.

Addressing Unfairness in the System

While designed to ensure fairness, the system's structure raises questions. A couple with both partners earning £49,999 each escapes the charge, while a scenario where one partner earns significantly more triggers the clawback. This apparent incongruity necessitates a closer look at the system's fairness and impact.

The Mechanics of Clawback

The clawback mechanism is straightforward but consequential. For every £100 over the £50,000 adjusted net income threshold, a 1% reduction in child benefit occurs. The situation intensifies for those surpassing £60,000, where the entire child benefit received during the tax year must be repaid.

Reporting Obligations and Self-Assessment

Additionally reporting obligations fall on the shoulders of the higher earner, emphasizing the importance of navigating the self-assessment process. This responsibility often rests with the partner responsible for preparing the tax return, typically the higher-income earner in the household.

Exploring Options and Recommendations

Moreover, in the face of these regulations, proactive steps become imperative. We advise promptly addressing obligations, registering for self-assessment if necessary, and considering the option of not claiming child benefit, understanding its potential impact on national insurance contributions and future state pension.

Conclusion

Nonetheless, our exploration of the Higher Income Child Benefit Charge unveils a nuanced financial landscape. By understanding the £50,000 threshold, the clawback mechanism, and reporting obligations, we empower ourselves to navigate this system with clarity and confidence. Stay informed, take charge, and join us for future episodes as we continue simplifying the world of finance.

Do you claim child benefit either as a single person or as part of a couple? Do you or your partner have income in excess of 50,000 pounds? If the answer is yes to both those questions, then the high income child benefit charge applies to you. I appreciate that's a bit of a mouthful, but that's the way the language is constructed.

In this week's I Hate Numbers podcast, I'm going to be outlining exactly what is meant by that 50,000-pound income. Who it applies to and what your obligations are under this regime. The regime has been with us for several years, but unfortunately, many hundreds and thousands of people slip through the net and not fully aware of their obligations and their responsibilities.

And when HMRC discovers this is going on, that can be quite a nasty financial shock to your bank balance as well as your stress levels. And I don't want that for you.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks, welcome to another weekly episode on I Hate Numbers. This is the podcast that's got a very simple mission - is to help you and your business make more money reduce your financial stress and your tax liabilities, increase your financial awareness, and for you to have the business and lifestyle that you aspire to.

Let's crack on with the podcast. Firstly, I want to have a look at this idea of what that 50,000-pound limit refers to, and it refers to adjusted net income, more of that in a few moments. Now the situation potentially is quite unfair. It's either you or your partner that has that income in excess of 50,000. So for a couple that are high earners and both might have income of forty nine thousand nine hundred ninety nine pounds each, then this regime does not apply to them and there's no clawback of child benefit.

If one of you in the relationship is a low income earner or doesn't earn at all and your partner is a high income earner according to this criteria with adjusted net income in excess of 50, then the regime applies to you and there's going to be a clawback of child benefit. What that clawback is, I'll explain later on in the podcast.

Now let's dive a little bit deeper into what is meant by this 50,000-pound figure. The specific terminology that's adopted is adjusted net income. Now in the world of tax, in the world of finance, many words float around the system, many bits of jargon, they can make your eyes water and your head hurt and adjusted net income is not quite the same figure as taxable income or income that goes directly on your personal tax return.

Now adjusted net income is income from all the sources that you have, self employed profits, rental income, PAYE's income. We then deduct things such as gift aid contributions, such as donations made to charity. We also deduct losses that we may have incurred, for example, on our self employed businesses from prior years.

And we can also deduct pension contributions if they're made gross and there's no tax relief that's been applied to them in the first place. Now, if that figure brings you down to income below 50,000, then there's no clawback of child benefit. If however, you're still in that 50,000-pound plus bracket. Then there will be a clawback of the child benefit that's been paid to you during the tax year.

Now that clawback is based for every hundred pounds over that adjusted net income, there's a clawback of 1% of the child benefit. Once you get to the magic 60,000, by the way, any child benefit that's been paid over to you, all of that has to be paid back through the mechanism that HMRC will give you, which is your personal tax return.

So 60,000 pound a year plus, all the child benefit that you claim will be clawed back. If it's below the 60,000 and over the 50,000, then it will be a proportionate reduction and a proportionate clawback. The second thing I want to explore is what the reporting obligations are. And enter the self assessment, the personal tax regime.

Now, the obligation falls on the shoulders of who is classified as that high earner. So where in a typical situation it is normally women who will be running the household, taking care of the child duties. That's not to say there's no equality going on by the way, but if I use that as an illustration, then if the woman in this situation is the low income earner and the husband is the high income earner, it's the husband or the partner

who is responsible for preparing the tax return and having that income clawed back? Obviously if it's the other way around then the obligation falls on the partner, same sex marriage, female partner, whatever that has to complete the personal tax return. Now if for any reason you've not had your child benefit clawed back, you've not declared it, you've not prepared a tax return previously then potentially there are challenges there which can be resolved.

Now thirdly I'm going to have a situation of the options are open to us. Now HMRC will adopt an attitude as with all taxes that ignorance is no excuse. So from their perception they've done adequate marketing campaigns to make people aware of their obligations. As far as they're concerned people should know

what the rules and regulations are, which seems a little bit unfair. I work in the field of tax and business and finance, so it's familiar to me and it's familiar to my clients. But if you're outside of that remit, then you may not be fully aware quite innocently. The first thing you should do is just take a step forward, take charge of the situation and make sure you bring your obligations up to date.

What that will do, that will mitigate and reduce any potential penalties that might arise. And if that settlement is made promptly, then obviously that reduces the interest cost that will be levied on you for underpaid tax. If you're not part of the self assessment tax regime, you've obviously got to register, you've got to complete your self assessment, and you've got to file that off to HMRC.

Now folks, while we're talking about self assessment and tax, there is a free webinar taking place on the 6th of December called Taking the Stress Out of Your Tax Returns, where I go through the process of what's involved in completing a tax return, expenses that can be claimed, the actual filing of the tax return, and what to do if that situation arises where you don't have the funds to fully pay your tax liability

and also mentioning how the tax liabilities are calculated in the first place. Check the show notes for a link to that registration page and I'd look forward to your company on that date. Now let's finally wrap up where we are. So if you or your partner are claiming child benefit and one of you has adjusted net income in excess of 50, there will be a clawback of child benefit.

The clawback is 1 percent for every 100 over the adjusted net income. You have to complete a tax return to make that declaration and you need to make sure that your obligations are brought fully up to date. Now there are a couple of things to consider here. One option may be not to claim the child benefit at all and normally that would seem quite sensible.

However, be aware not claiming child benefit if one of you in the relationship is a low earner. means that you may not get your credit for national insurance contributions, which could affect your future state pension. If you check out an earlier podcast episode, link in the show notes, I've got a podcast on national insurance contributions state pension, and I would always recommend do a state pension forecast.

Some people, some clients I'm aware of will claim the child benefit, treat it as an interest free loan and know that will be paid back to HMRC at tax return season. And that's perfectly legitimate folks. I hope you got some use from this podcast. I hope it's been informative. If you think there are others in your network that will benefit Please share it with them.

I'd love it if you subscribe, and I'd love it if you share some feedback and thoughts about what you thought of this particular episode. Again, check out the show notes for the link to next week's webinar, and hopefully I'll see you on that one. Until then, have a good week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

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