Nottingham families could soon be hit with tax bills issued by HMRC.
Those parents claiming Child Benefit could find themselves repaying thousands just weeks from now as research shows many are unaware of a rule that applies to the payment in certain circumstances.
More than a million families are being warned they could have to pay back thousands of pounds of Child Benefit over the next financial year, which starts in April.
Finance experts say this little-known issue centres on what's known as High Income Child Benefit Charge (HICBC), which was introduced in January 2013.
This is a tax that applies to anyone with an income over £50,000 who gets Child Benefit, or whose partner gets it.
It’s estimated 1.6 million families, which is more than one in five, will be affected by the tax in 2022/23 reported Birmingham Live.
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.
"The amount to pay depends on an individual’s adjusted net income and the amount of Child Benefit the claimant is entitled to. Adjusted net income is total taxable income minus certain tax reliefs, for example for trading losses (for the self-employed), Gift Aid charity donations, and pension contributions.
"The charge is equal to one per cent of a family’s Child Benefit for every £100 of income that is over £50,000 each year. If an individual’s income is over £60,000, the charge will equal the total amount of the Child Benefit.
"Families can use the Child Benefit calculator to work out how much tax they may have to pay."
But new 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 High Income Child Benefit Charge.
Sean McCann, Chartered Financial Planner at NFU Mutual, said: "These figures confirm that High Income Child Benefit Tax often come as a shock to many people.
"Many families don’t realise 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."
He added: "The £50,000 threshold for paying the tax has been frozen at that level since it was first introduced in 2013.
"A tax that was initially designed to be paid by those on a ‘high income’ is now hitting some basic rate taxpayers which many view as unfair.
“The fact that a single earner in a household with income of £60,000 would need to repay all their Child Benefit, while a separate household with two earners each earning £50,000 would keep all theirs is one of the reasons it's viewed by some as an unfair tax."
Mr McCann offered one potential solution for people approaching the £50,000 or £60,000 limit.
He said: "One way to save your family money if your income is near those thresholds is to pay more into your pension.
"This reduces your taxable income and therefore can reduce how much Child Benefit you have to pay back, while also building up a tax-efficient pot for retirement."
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 signposted to the HMRC website for more details of HICBC.
"HMRC continues to use a range of channels to raise awareness of HICBC and help taxpayers understand what they need to do to pay the charge. HMRC does this both through its communication channels and by working with partners and other relevant stakeholders.
"Between November 2013 and January 2015, HMRC issued 223,500 letters to remind customers what they needed to do to pay HICBC.
"During 2018 to 2019 HMRC wrote to 79,726 customers to remind them what they needed to do to pay HICBC, a further 73,668 customers in 2019 to 2020, and 93,927 customers in 2020 to 2021."
To sign up for the Nottinghamshire Live newsletter click here
