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Chronicle Live

National

Catherine Furze

Child Benefit loophole that could cost parents a hefty fine from HMRC

HMRC Child Benefit Tax Return Airbnb

Parents are being warned not to fall foul of a child benefit loophole which could see them facing a fine from the tax man as the deadline for filing your tax return gets nearer.

The warning comes after His Majesty's Revenue and Customs (HMRC) was rapped in a tribunal after it sent a bill to dad Matthew Kensall demanding a £2,295 payment. and a £459 late penalty for failing to fill in a tax return for three years.

HMRC was criticised for its "heavy-handedness" and ordered to waive the penalty after fining him for failing to pay a charge that tax experts say he could not reasonably have known he needed to pay. Like many parents, Mr Kensall did not realise that he had to pay back Child Benefit once he or his wife earned more than £50,000 and did not realise benefits such as company cars were also taken into account in the calculation.

More than 180,000 parents have been hit with such fines since the high income Child Benefit charge was introduced in 2013, according to The Telegraph. The £50,000 threshold has not changed since it was introduced by the Coalition Government, which means many more workers are included due to salary increases since 2013.

A family with one parent earning £50,001 as the sole earner would have to pay the charge, whereas a family where both earn exactly £50,000 would not owe a penny.

Keith Gordon, of Temple Tax Chambers, a specialist set of tax barristers, said the charge was “a trap waiting to happen” because the onus is on the taxpayer to file a tax return and pay the charge. "The charge can catch individuals whose taxable income exceeds £50,000 meaning that they might have to repay to HMRC the Child Benefit that their partner received," he said. "Other difficulties can arise when calculating income. It means more than salary. It can include bonuses and also non-cash benefits."

And Michelle Denny-West, of tax firm Moore Kingston Smith, called for the high-income charge to be simplified, saying: “This case highlights the need for the charge to be simplified and dealt with in a way which is appropriate for all taxpayers, not just those with a knowledge of our complicated self-assessment system.”

A spokesman for HMRC said: “The vast majority of customers meet their obligations and comply with the high income benefit charge. This judgement does not affect any taxpayer’s liability for the charge.”

Latest figures show that nearly five million people still haven’t filed their tax returns ahead of the deadline on Tuesday, January 31. HMRC says it is expecting a record number to complete self-assessment forms this year, according to This Is Money.

Who needs to fill out a tax return?

If any of the below applied to you between April 6, 2021 and April 5, 2022, you need to file a tax return:

If you earned than £100,000 during the last tax year, even if you worked full time;
If you have your own business or worked for yourself and earned more than £1,000;
If you claimed Covid-19 grants or support payments, such as the Self-Employment Income Support Scheme (SEISS).
If you were a partner in a business partnership;
If you earned income overseas, or alternatively lived abroad and earned income in the UK;
If you want to claim tax relief on donations to charity and are a higher rate taxpayer;
If you earned more than £2,000 from shares or dividends;
If you earned more than £1,000 from renting out property or from running a holiday let, including Airbnb.
If you were employed but used your own money to travel and pay for other job expenses;
If you need to claim tax relief, such as on pension contributions;
If you earned more than £50,000 while you or your partner claimed child benefit;
If you earned income from a trust or if you were a beneficiary of someone’s estate;
If you want to transfer your tax-free personal allowance to your spouse.

When do you not need to file a tax return?

You don't need to file a tax return if any of the following applied between April 6, 2021 and April 5, 2022:

You earned less than £100,000 and all your income was taxed under PAYE;
You are not making any other income that could be taxable;
You did not claim any reliefs, grants or expenses from HMRC;
You earned less than £1,000 per year from additional income, you do not need to send off a tax return.

What if HMRC owes you money?

It may be the case that HMRC owes you money — but it is up to you to claim it back.

Circumstances where you claim a rebate include:

If you worked from home in 2021-22, you can claim tax relief on £6 per week for the entire year. This is the last year that the allowance can be claimed.
If you donated to charity, even by supporting a friend via Just Giving;
If you are a higher rate taxpayer and make pension contributions out of your income after you’ve already paid tax;
You can deduct a range of expenses from the tax you owe as a sole trader or self-employed worker, including travel costs, office expenses and staff salaries;
You can deduct cleaning costs if you are an AirBNB host.

Around 2.3 million people were late to file their tax return for 2020-21 last year. If you fail to file a self-assessment tax return you can be fined up to 30% of what you owe by HMRC, on top of a late filing penalty of £100. If it's more than three months late, interest starts to be charged on outstanding balances.

During the pandemic HMRC was more lenient and extended the tax return deadline by a month in 2021 and 2022. But this year, anyone who misses the first deadline will receive a £100 fine. After three months, you will begin incurring additional daily fines of £10, up to a maximum of £900. Failing to file for a whole year could leave you facing a £1,600 bill.

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