High-earning parents claiming Child Benefit could be hit with big tax bills in just weeks - and many are completely unaware.
More than a million families are being warned they could have to pay big bill for claiming 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 claims it.
Child Benefit is a benefit open to anyone bringing up a child under 16, or under 20 if they stay in education or training.
Around 1.6 million families, which is more than one in five, will be affected by the tax in 2022/23.
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HM Revenue & Customs (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."
How much families pay depends on their 'adjusted net income' and how much Child Benefit they are allowed.
Adjusted net income is simply income minus any tax relief, pension payments and trading losses if you are self-employed.
For every £100 that someone claiming Child Benefit earns over £50,099 a year, they have to repay 1% of what they get under the benefit.
If they earn more than £60,000, all the Child Benefit must be repaid.
For example, someone earning £50,100 a year, just above the threshold, would be eligible for £1,099.80 in Child Benefit and would have to repay £10.
Someone in the same position earning £51,000 would repay £109, and someone earning £60,000 would repay the full £1,099.
HMRC has a Child Benefit calculator which works out how much has to be repaid.
Recent research from NFU Mutual found that most people did not know they may have to repay their Child Benefit, with 84% of respondents unaware of the existence of the High Income Child Benefit Charge.
Sean McCann, Chartered Financial Planner at NFU Mutual, said: "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."
The Mirror has reported that one father took the tax authority to court over the issue – and won the case.
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."
