If you were lucky enough to lose your child benefit entitlement earlier this year, but continued to draw it, the deadline for informing HMRC is looming. By law, you need to tell HMRC that you owe them money (yes, really) no later than six months after the end of the tax year in which the tax liability arose. For the 2012/13 tax year (the child benefit rules changed in January 2013) which ended on 5 April, you need to register for a Self Assessment return by 5 October. That’s next Saturday.
Why do I need to complete a tax return?
The law changed in January and made those where one partner in a couple has income over £60,000 ineligible for child benefit, and those with an income of between £50,000 and £60,000 entitled to a reduced amount. HMRC wrote to those they thought might be affected to tell them they could either stop receiving the benefit, or they could claim the cash, and repay it through a Self Assessment tax return.
While declining the benefit is the simplest option for those earning over £60k, it may be that the non- or lower-earning partner receives the benefit and they continue to want this cash (rather than asking for ‘housekeeping’). Also, there is a cash-flow benefit of taking cash totalling £1700+ of the Government’s money and not giving it back for up to 22 months. Those earning between 50k and 60k would not be advised to decline the benefit, as they should get a proportion, and even for those whose salary is over £60k, allowable deductions like pension contributions might mean they officially earn less, for child benefit abatement purposes.
Of course, high earners will probably already need to complete a tax return as any non-PAYE income (including miniscule bank interest) will need to be declared and higher rate tax paid. But remember, Labour says people earning £50-£60k are not high earners (although someone earning £6k a year may disagree), so they may indeed be needing a tax return for the first time.
You may also need to declare your child benefit if your income rose above £50k for the first time in 2012/13.
What do I have to do?
You need to register for Self Assessment, but helpfully, you can now do it online here, quoting your National Insurance number. If the only reason for needing a tax return is down to child benefit, then the person earning over £50k should register. If both spouses earn over £50k , then the highest earner should register.
What happens if I don’t register for Self Assessment?
Well, immediately, nothing. However, if HMRC can show that you had a liability and you didn’t tell them in time, you can be penalised for not submitting tax returns and suffer surcharges for not paying back (in tax) the benefit received. The normal deadline for submitting online returns is 31 January following the end of the tax year (so 31 January 2014 for 2012/13), but paper returns normally have to be in by 31 October (2013). However, where a return is not issued by 31 July, you normally get up to three months to submit a paper return. The normal late tax return penalties will apply if you don’t get your tax return in on time.
However, more worrying is the new ‘failure to notify’ penalty regime, under which HMRC can penalise you up to 100% of the tax due just for failing to tell them you were going to owe tax.