You may have heard about the changes to Child Benefit which HMRC has brought in (from 7th January 2013), there has been a lot of press coverage, much of it negative!

If you or your partner have an individual income of £50,000 or more then you’ll start losing the benefit and when one of you hit’s £60,000 income the benefit will be completely removed. If your income is between £50,000 and £60,000 you will face a claw back of 1% of benefit for every £100 of income.

You can choose to opt out of the benefit completely but if your individual income is between £50,000 and £60,000 you would be wise to not opt out but to instead report it through a self-assessment tax return as the tax charge should be less than the benefit received.

Also bear in mind your eligibility for child benefit depends not just on earnings but on adjusted net income which includes all taxable net income, including rental income and investments. However you can use pension contributions and gift aid donations to reduce your taxable income levels.

There are a couple of examples of how the tax charge works (from HMRC) below.

Charge on income of £50,000 to £60,000

The tax charge will be 1 per cent of the Child Benefit paid for every £100 of income between £50,000 and £60,000.

The tax charge will be less than the total amount of Child Benefit.

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

Charge on income of £60,000 or more

If your individual income is £60,000 or more, the tax charge will be equal to the full amount of Child Benefit you, or your partner, are entitled to receive.

Example

Your individual adjusted net income is £62,000. You, or your partner, were entitled to receive Child Benefit of £438 for two children for the period from 7 January 2013 to 5 April 2013.

Your tax charge will be £438

For some tips on how to reduce the impact of the child benefit charge check out our article.

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