Child Benefit Tax from 7 January 2013

Do you receive Child Benefit?
Do you or your partner* have taxable income of more than £50,000 per annum (or might you have in the future)?
If you answer yes to both questions, you will be affected by this new tax.

*The definition of a “partner” goes beyond a spouse or civil partner. If you live with someone, and either of you claim child benefit, then you are also caught by this new tax.

How much is payable?

If either you or your partner earns more than £60,000, the higher earning partner will have to repay all of the child benefit received after 7 January 2013. This will be recovered via self-assessment.

If you or your partner earns between £50,000 and £60,000, the higher earning partner will have to repay some of the child benefit received after 7 January 2013 at a rate of 1% for every £100 that the higher earning partner’s income exceeds £50,000. So, for example, if your earnings total £54,000 in a tax year, then 40% of the child benefit will be added to your self assessment liability, which is then payable on 31 January after the end of the tax year.

It does not matter if you receive child benefit for one or more children – the percentage charge is applied to the total benefits paid, and for those earning more than £60,000, the percentage charge is 100%.

Can the charge be avoided?

The only way that this charge can be avoided is if you elect to discontinue receiving the child benefit. Whilst H M Revenue & Customs have written to all taxpayers who they think will be affected, the charge will apply even if you have not received a letter. This might happen if your earnings increase quickly, or if you have an exceptional income source in one tax year. To discontinue receiving the child benefit, either call 0845 302 1444 or go to: www.hmrc.gov.uk/childbenefitcharge/stopchbpayments. It is the recipient who must make the election, who may not be the higher earner.

What should you do?

If you are certain that either you or your partner will earn more than £60,000 in a tax year, then it is probably simpler to elect to discontinue receiving the child benefit. However, do bear in mind that the child benefit is normally paid to the mother, but the tax may be assessed on the other partner.

If your income is likely to be more than £50,000, but less than £60,000, it will probably be better to continue to receive the child benefit, as only some of it will be repayable. Similarly, if your income is likely to fluctuate from year to year, both above and below the thresholds, then it is probably better to continue to claim the benefit. However one can back date a claim for child benefit for up to two years, so it will still be possible to change an election once income levels are more certain.

What information will we need?

Please let us know the full names and dates of birth of any children for which you are claiming child benefit. If a child is over 16, please also advise if the child is still in full time education. We are happy to receive this information by email – please send it to your normal contact or to mail@busbys.co.uk.