From January 2013, the rules on child benefit will change. This will now mean that families where one parent earns more than £50,000 a year will no longer be able to claim the total amount of child benefit, under these new government rules. It is thought that approximately 1.2 millions families will be affected. Under the current rules, one parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each subsequent child. This payment applies to all children aged under 16 and in some cases until they are 20 years old. Child benefit is paid out by HM Revenue and Customs (HMRC) which administers this benefit to nearly 7.9 million families, with 13.7 million children.
At present, all families can claim. However, this will change from January 2013.
Basically, what will happen is that there is now going to be an income tax charge that will apply from 7 January 2013 and will hit any family where a parent earns more than £50,000 a year. It will work on a sliding scale and is designed to cancel out some or all of the benefit of receiving payments if you are a higher earner, with those earning more than £60,000 receiving nothing at all. So if you are a parent who is earning between £50,000 and £60,000 a year, you will have two choices of what to do.
You can opt to receive the total amount of benefit, whether or not you are entitled to receive the full amount or not, and then fill in a self assessment tax return and let the tax man work out the difference, or, if you earn over £60,000 and you know that you are not entitled to any child benefit, you can opt to not receive it. However, there is no way round this as parent who earns more than £60,000 and who continues to claim child benefit will be taxed. So, what will happen is if one of the parents earns more than £60,000, they may choose to stop claiming child benefit, or persuade their partner to do so, they can save the tax authority the trouble of getting it back. Or if they or their partner keeps claiming it, then the higher earner will have to admit this in a self-assessment tax form. Then, HMRC will tax the high earner on the child benefit which they, or their partner, claims.
So, the high earner will need to know whether their partner is claiming child benefit, because it will be the high earner who is taxed. As only one parent can receive child benefit on behalf of their son or daughter HMRC says it will “expect” couples to give each other basic financial details to see if they must be taxed. HMRC will also let taxpayers ask for rudimentary information from its records to see whether or not their partners receive child benefit, or have an “adjusted net income” above £50,000, and should be paying the new tax.
For more information on the changes to child benefit please visit the HMRC website.