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Child Benefit changes

Posted by: edwinsmith on November 8th, 2012

From 7 January 2013, the High Income Child Benefit charge will be introduced.  This will affect you if the following apply:

  • Either you or your partner have income over £50,000 (in a tax year), and
  • Either you or your partner is entitled to receive child benefit. 

You will also be affected if during a tax year you have an individual income of more than £50,000 and someone else is entitled to receive Child Benefit for a child who lives with you because they contribute at least an equivalent amount of Child Benefit towards the child's upkeep, for example pocket money or clothes.  NB: it doesn't matter if the child that is living with you is not your own child. 

If your household is affected, the person with the higher income may have to pay a tax charge based on the actual income and the child benefit received.  Therefore you may wish to either stop receiving the Child Benefit, or continue to receive Child Benefit and use the self assessment system to calculate the tax charge each year. 

If you choose to stop receiving your payments, this will not affect your entitlement to Child Benefit, and you should still complete a claim form if you have not already done so.  This is because Child Benefit:

  • can help you qualify for National Insurance credits that can protect your entitlement to State Pension
  • can help protect your entitlement to other benefits such as Guardian's Allowance
  • ensures your child is automatically issued with a National Insurance number before their 16th birthday

If you choose to continue receiving Child Benefit, the higher earner in the household will be subject to a tax charge each year equivalent to 1% of the Child Benefit received for every £100 of income over £50,000 in a tax year.  As such, households where the higher earner has income of £60,000 or more will receive a tax charge equal to 100% of the Child Benefit received. 

Example

Your individual adjusted net income is £54,000. You are entitled to Child Benefit for two children of £438 for the period from 7 January 2013 to 5 April 2013.

Your tax charge will be worked out as follows:

Step one: income over £50,000 = £4,000

Step two: determine the percentage rate to be applied to the result from step one, so £4,000 ÷ 100 = 40 (%)

Step three: £438 x 40% = £175

'Your tax charge will be = £175 

To estimate the High Income Child Benefit charge applicable for your household click here 

A full guide on the changes introduced by the High Income Child Benefit charge can be found on the HMRC website

If you are unsure whether these changes will affect your household, or to speak to one of our qualified accountants contact us