Preserving Your Entitlement to Child Benefit

A general guide to the child benefit entitlement after 2013's income tax change to help you and your employees understand the facts

Preserving Your Entitlement to Child Benefit

From 7 January 2013 a new income tax charge will apply to individuals who receive Child Benefit, or whose partners receive Child Benefit, where income is more than £50,000 for the tax year. Where both partners have adjusted net income in excess of £50,000 the charge will apply to the partner with the higher income.

The income tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

Child Benefit claimants will be able to decide not to receive Child Benefit if they or their partner do not wish to pay the new charge.

This charge will have effect from 7 January 2013 and for 2012/13 will apply to the Child Benefit paid from that date to the end of the tax year. The income taken into account will be the full income for 2012/13.

The removal of Child Benefit from households containing a higher rate taxpayer had been announced previously. However the detail of the way in which the restriction would apply had been subject to speculation. The following HMRC example shows how the charge will be calculated:

The Child Benefit for two children amounts to £1,752 and the taxpayer’s adjusted net income is £54,000.

The income tax charge will be £700.80 which is calculated as £17.52 for every £100 above £50,000.

For a taxpayer with adjusted net income of £60,000 or above the income tax charge will equal the Child Benefit.

The current rates of child benefit are £20.30 per week for the first child and £13.40 for each subsequent child.

The loss of income for a family could be quite substantial. However with some planning we believe that in many cases involving self-employed taxpayers it should be possible to avoid or mitigate the loss.

If you would like further advice on this subject, please contact Kevin Gilbert, Partner at Morris Crocker Chartered Accountants. This article is for guidance only and professional advice should be obtained before acting on any information contained herein.

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