Child Benefit claimants earning more than £50,000 and over, face a confusing January 2013 when new rules come into place where the taxman will charge these high earners tax to recover the Child Benefit they receive.
Letters to this group of people - estimated at one million families - will be sent out by HM Revenue & Customs from 3 November 2012 and a new website, has launched today to help those who think they may be affected by the imminent rules.
From 7 January 2013, the taxman will charge individual taxpayers who have a net income over £50,000 in a tax year, where either they, or their partner, is in receipt of Child Benefit for the year.
If both partners – whether married or not, or living together or not - have adjusted net income over £50,000, the partner with the higher income will be liable for the tax charge. The definition of 'income' has a specific meaning for the tax charge, which taxpayers can check themselves on Gov.uk's tax calculator.
There are two choices to be made under the new rules:
- Keep receiving Child Benefit payments – which means they will have to pay a tax charge on the Benefit they or their partner gets; and they will have to declare the Child Benefit by filling out a tax return.
- Or stop receiving Child Benefit payments. This clearly means no tax charge, and no need to complete a tax self-assessment return.
Chas Roy-Chowdhury, head of tax at ACCA, says: 'The fact is that tax self-assessment could be the new norm for many families from January 2013 if they choose to keep receiving the benefit – worth £20.30 a week for the eldest child and £13.40 a week for each of someone’s other children. Taxpayers can reduce the relevant income, and the tax charge if they earn less than £60,000, by making extra pension contributions from taxed income, or giving to charity under the Gift Aid scheme.
'There’s been a lot of comment about how confusing these new rules are, mainly because Child Benefit can be received by someone even if they don’t live with the children for which they are claiming benefit, as Child Benefit can be paid to someone if they pay for the upkeep of their child.
'I’d advise seeking help or indeed calling HMRC, or working your way through their new website which is launched today.'
- The website walks people through a series of ‘yes and no’ scenarios to help them find out if they are affected by the High Income Child Benefit charge. It also calculates how much they will be paying. The checker tool can be found in the 'Related Links' section, to the left of this article.
Both partners on £55,000 per annum = charge of half the Child Benefit total amount on the ‘higher earner’
One partner earning £60,000, one earning £50,000 = charge of 100% Child Benefit on the higher earner