Child Benefit. Will you lose it?

The Facts

• Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children
• One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children
• The payments apply to all children aged under 16 and in some cases until they are 20 years old
• The system is administered by HM Revenue and Customs (HMRC) which pays out to nearly 7.9 million families, with 13.7 million children

From January families where one parent is earning more than £50,000 a year, will no longer be able to claim the total amount of child benefit.  How these rules are put into action is still being worked out by the UK tax authority. However, this will include an expectation of couples to disclose to each other whether they claim child benefit, or earn above £50,000 a year. The amount received will be withdrawn gradually as one parent’s income rises above £50,000, with the child benefit being eroded completely once someone’s income is £60,000 or more.

If one of the parents earns more than £60,000, they may choose to stop claiming child benefit and save the tax authority the trouble of getting it back. But if they keep claiming it, then they will have to declare this in a self-assessment tax form.  This is expected to force half a million people to start completing tax returns.

We advise that clients should address this matter early, rather than suffering what can be seen as a double taxation of earned income, and the inconvenience and perhaps accountancy costs of completing a self-assessment return.  We have already advised a number of clients who’s income may exceed the £50,000 threshold.  As well as paying tax on this income they are now likely to lose what has been a valuable benefit.  Through financial planning there are legitimate ways of reducing income such as making contributions to a Personal Pension.   As ever if clients don’t plan for these matters the tax man will benefit.

By webmaster in Blog on May 16, 2012