A family claiming the weekly Child Benefit (currently, £20.70 a week for eldest or only child and £13.70 a week for additional children) may get an unwelcome tax bill if either parents’ income exceeds £50,000 during a tax year.

A tax charge was introduced a number of years ago, known as the ‘High Income Child Benefit Charge’ (HICBC), if either parent had income over £50,000 and:

• either partner received Child Benefit, or
• someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

It doesn’t matter if the child living with you is not your own child. The charge was introduced to recover Child Benefits from higher income earners.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2017-18 is likely to exceed this amount you should be aware of the following.

• Before 6 October 2018, the parent with the higher income for 2017-18 (more than £50,000) will need to register to submit a self-assessment tax return and pay and HICBC due – unless they are already registered in which case they will need to enter the amount of Child Benefit received on the return and pay any tax due.
• The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline Child Benefits in the first place. To summarise:

• Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
• Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.
• Parents where the highest income is over £60,000 may be advised to decline future Child Benefit claims as all benefits received will be clawed back by the HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions. Please call if you would like more advice regarding these deductions.

The Low Incomes Tax Reform Group (LITRG) has welcomed a recent announcement by the Government that there will be a one-year delay before the removal of Class 2 National Insurance contributions (NICs) to enable consultation on the impact of its abolition on the self-employed with low incomes.

If Class 2 NICs were abolished, those with profits below the small profits threshold (currently £6,025) would currently have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. LITRG is keen for a way to be found for the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate like the present Class 2, perhaps by introducing a lower rate of Class 3.

LITRG Chair Anne Fairpo said:

“We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.

“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension.

“We welcome the breathing space on this matter because of our concerns that the abolition of Class 2 was being rushed through without adequate further consultation, together with a lack of publicity and guidance for the people affected.”

The delay means the measures in the unpublished NIC Bill will now take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.

The Office of Tax Simplification (OTS) published a report setting out a range of proposals for simplifying VAT. According to the OTS the tax is showing its age. What was meant to be a simple tax has become highly complex and it has not kept pace with changes in society.

The most significant issue identified in the report is the VAT registration threshold – the turnover level above which a business must enter the VAT system and charge VAT on its sales. At £85,000 the UK has one of the highest levels in the world.

By enabling many small businesses to stay out of the VAT system the high threshold is a form of simplification, but it’s an expensive relief, costing around £2bn per annum, and evidence strongly suggests that many growing businesses are discouraged from expanding beyond this point. The report looks at options for reducing the current ‘cliff edge’ effect resulting in a very visible bunching of businesses just before the VAT threshold, and an equally large drop off in the number of businesses with turnovers just above the threshold. Also examined are the advantages and disadvantages of lowering or increasing the threshold.

VAT has many ‘quirks’. For example, it is well known that a Jaffa cake is a cake (zero-rated) rather than a chocolate-covered biscuit (taxed at 20%). Less well known is that while children’s clothes are zero-rated, including many items made from fur skin, items made from Tibetan goat skin are standard-rated. And a ginger bread man with chocolate eyes is zero-rated but if it has chocolate trousers it would be standard rated. VAT zero rates cost over £45bn per annum to maintain. EU law limits options to make changes in this area but there is a longer-term opportunity to significantly improve the efficiency, simplicity and fairness of the UK VAT system.

The OTS report, will need to be examined in some detail. It will be interesting to see if we could achieve a real simplification of this complex tax or if, yet again, smaller businesses are required to absorb more red tape and tax burden while larger concerns with stronger lobbies and resources continue to avoid liability.

If a parent owes child maintenance, deductions to recover that debt can currently only be made from a bank or building society account held solely by them.

Unfortunately, a small minority of parents are cheating their way out of supporting their children by putting their money into a joint account with a partner.

New laws will be brought in to allow deductions to be made from joint accounts to recover child maintenance arrears.

It is believed that by closing this loophole this could stop many parents getting away with not paying their child maintenance each year – leading to more than £390,000 additional child maintenance being collected.

The recent government’s response to a public consultation on joint account deductions has been published. This sets out how deduction orders against joint accounts will work and the safeguards that will be in place to protect the other holder of the joint account.

These include:

• a deduction order only being imposed on a joint account when the paying parent does not have their own account, or there is not enough money in their own account
• only funds belonging to the paying parent being targeted, as before a deduction order is made on a joint account, data on that bank account will be collected and bank statements examined to establish which money in the account belongs to the paying parent
• existing safeguards already in place for deduction orders for child maintenance will apply to this new power, including the maximum deduction rate on regular orders being set at 40% of the paying parent’s weekly income
• both account holders will be given the right to make their case before a deduction order is made

The new power will come into effect early next year.

1 November 2017 – Due date for corporation tax due for the year ended 31 January 2017.

19 November 2017 – PAYE and NIC deductions due for month ended 5 November 2017. (If you pay your tax electronically the due date is 22 November 2017.)

19 November 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2017.

19 November 2017 – CIS tax deducted for the month ended 5 November 2017 is payable by today.

1 December 2017 – Due date for corporation tax due for the year ended 29 February 2017.

19 December 2017 – PAYE and NIC deductions due for month ended 5 December 2017. (If you pay your tax electronically the due date is 22 December 2017)

19 December 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2017.

19 December 2017 – CIS tax deducted for the month ended 5 December 2017 is payable by today.

30 December 2017 – Deadline for filing 2016-17 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2018-19.