Do you need to do anything before the new Child Benefit changes apply?

24 October 2012

child moneyHere’s a scary thought- it’s only 10 weeks until January. While the thought of new year’s resolutions may be enough to bring most of us out in a cold sweat, there is something else happening that may be worrying some UK parents- the withdrawal of child benefit from higher earners.

From 7 January 2013, if one partner of a couple with children has net income of over £60,000, child benefit will be removed entirely, and where one partner earns between £50,000 and £60,000, the benefit will be reduced. However, what some people may not realise is that, for those affected, there are some options to consider.

1. Opt-out of Child Benefit entirely

If you are in the afflicted group, you can decide to ‘opt-out’ of the child benefit regime entirely. This means that you will not have to disclose certain details about your tax affairs on a tax return at the end of the year, which may please those privacy-seekers. However, if you are on a high level of income, it is likely that you will be completing a tax return anyway, so this option may have limited effect.

However, what may be of interest to these non-sharing types may be the facility to enquire of HMRC whether you are the higher earner or if your household is claiming child benefit. In some households this information is not shared, so you can write to HMRC and they will tell you who is the higher earner, although they will not disclose the amount. Watch out for some wounded pride there.

The crucial part is that this decision, and the clawing back of benefit, will rest with the higher earner, who is often not actually the one claiming the benefit. While this works out well for a non-earning spouse who claims the benefit which is then repaid by their high-earner, it is also the earner’s decision whether to opt-out or not. In certain situations, people could see their child benefit cut off unceremoniously in January, leaving them further beholden to the benevolence of their spouse.

Other reasons why it might not be a particularly clever idea to opt out are the requirement to re-register if you lose your job, or suffer a drop in earnings, and the fact that being in receipt of child benefit currently gives the recipient a ‘stamp’ for contribution purposes that count towards things like state pension entitlement.

2. Pay it back

The second, and likely to be most common option is to continue to claim the benefit, but to repay it on the tax return of the higher earner at the end of the year. If earnings are over £60,000, the calculation is simple* and 100% of the benefit claimed must be paid over as an additional tax charge included on a Self Assessment return-  parents get £20.30 a week  for a first child and £13.40 for each subsequent child, giving an annual repayable amount of £1,056 for one, £1,752 for two children, etc. If net income is between £50,000 and £60,000, however, the amount of benefit claimed is reduced by 1% for every £100 of net income over the £50,000 threshold. By way of example, someone with income of £55,000 would be levied with a 50% reduction in benefit (£5000 divided by £100, multiplied by 1%), so their tax return would show a charge of £528 if they had one child.

The big advantage of this method is that HMRC are effectively giving you an interest free loan by paying you the benefit up front, but only asking for it back via  a declaration on (potentially someone else’s) tax return.

3. Adjust your circumstances so you ARE still eligible

This may sound easier than it actually is to achieve. You could reduce your net income so that it falls below the cut-off threshold. Two ways this could be done are by increasing pension contributions, or by sacrificing salary via your employer (most often used for diverting into a pension). However, the money diverted by this type of scheme into a pension will be tied up in there for a number of years, all for an extra £2 grand now.

Also, it is quite difficult to get out of the definition of being in a couple. As far as HMRC are concerned, there are no restrictions on coupledom based on official pieces of paper or gender, so a couple comprises a household with children, meaning two adults who are either married, unmarried or living as civil partners will all qualify.

* simple, apart from the fact that the Government decided this should apply from January, not April, meaning there will need to be a weekly apportionment for the last part of the 2012/13 tax year.

1 comment

  • Commento
    Good, if you're earning that much fucking money as a single earner you can afford to pay for your spawn yourself.

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