From January 2013, new rules come into force which will make Child Benefit means-tested for the first time. The controversial changes mean than a couple earning £50,000 each could keep the benefit, but a couple with one single earner on £60,000 would lose the benefit entirely.
What is Child Benefit?
The benefit is currently universal and not means-tested. It provides a tax-free payment to help parents with the costs of brining up children. One of the parents will receive £20.30 per week for the first child, and £13.40 for subsequent children aged under 16. You can still claim for children aged up to 20 if they are in eligible training or education.
Child Benefit changes from January 2013
The changes take effect fro 7th January 2013.
If both of the parents have incomes of £50,000 or less, then they will still be eligible to receive the full Child Benefit payment.
If either of the parents earns over £50,000, then they will have to pay a ‘tax charge’ of 1% of the total Child Benefit value for every £100 they earn above £50,000. So, if they reach the £60,000 threshold, the entire value of the benefit will have been eroded.
A controversial anomaly arises from the way the changes are being implemented. The ‘tax charge’ will fall on the highest earning partner in the ‘household’. So, if one partner earns £60,000 and the other £30,000, then the couple will not be entitled to receive any benefit at all. However, despite jointly earning £10,000 more than the first couple, a couple where both partners earn £50,000 can keep the entire Child Benefit!
How will the ‘tax charge’ be applied?
Letters are being sent out by HMRC to inform taxpayers who are currently earning £50,000 more via the PAYE system that they may wish to opt out of receiving Child Benefit altogether. Otherwise, one partner will continue to receive the Benefit, but the higher earner in the relationship will have to account for the benefit through the self assessment system, or via an adjustment to their tax code to claw back the payments.
According to an informative post in The Telegraph this week, people who are taxed via the self assessment system (including company owners) will not automatically receive notification letters from HMRC. The article also illustrates how many potential problems could arise as a result of these changes – not least to families where the parents are separated.
Read the full HMRC guide to the Child Benefit changes.