The current crisis has made many of us focus on our personal finances as income is reduced or even dries up completely
One thing to consider, as you may have disclaimed this over the past few years, are child benefit payments.
The scheme is applicable to a parent/guardian who is responsible for bringing up a child/children who areUnder 16; orUnder 20 if in full time approved education or training.
The benefit is currently £21.05 a week for the eldest child and £13.95 a week for every child thereafter. So, for a family with 2 children, the child benefit payments could provide the family with £1,820 of tax-free income. For a family of 3 children, it can provide £2,545.
The child benefit scheme underwent a significant change back in January 2013 when the government introduced the High-Income Child Benefit Charge(HICBC). This affected many higher rate taxpayers as it led them to effectively having to pay back part or all of any child benefit received if anyone in the household earned over £50,000 in the tax year. Above this level, the benefit was withdrawn on a gradual basis and once income reached £60,000, 100% of the benefit had to be paid back. Any overpayment was collected through the tax system.
The anomaly in the system was that it was based on the highest earning individual within the household. So, you could have the following situation which seemed completely unfair but was how the system worked.
Household A: -Mr A earns £60,001 and Mrs A earns £Nil; their total household income is £60,001 which is enough for them to lose all of their child benefit entitlement. If they have 2 kids, they lose £1,820 of tax-free money.
Household B: - Mr B earns £49,995 and Mrs B earns £49,995; their total household income is £99,990 but because neither of them earn over £50,000, they keep all their child benefit entitlement!
From a planning point of view, if you would be entitled to claim child benefit and are in a position to “equalise” income between householders (family company dividends for example), bear in mind that by keeping the income under the £50,000 threshold for each earner, you may be able to obtain some additional tax free income through this benefit.
When the HICBC was introduced, many households simply disclaimed the benefit if they knew they were going to have to pay it back at some point; HMRC were also levying interest and penalties for past claims, which led to more households disclaiming the benefit.
If, however, you did disclaim the benefit and your income has been reduced during the current crisis, it may be worthwhile revisiting this benefit to see if you may now be eligible to claim. Even if you may be over the earnings limit in the current tax year, it might be worth claiming the benefit for the 2020-21 tax year for cash flow purposes – as it won’t need to be paid back until January 2022 – every little helps at the moment!
Any such claim can also be backdated by up to 3 months.
More information can be found at - https://www.gov.uk/child-benefit/how-to-claim.
Written by Paul Dell - Partner
If you want to find out more, email Paul by Clicking Here.
Raffingers will be covering all of the Coronavirus updates as and when they come through from the government so sign up to our Coronavirus update mailing list by Clicking Here.