Child Benefit is currently a tax-free payment available to married couples, civil partnerships and single parents as well as certain other eligible adults regardless of the amount of their annual income.
A claim for Child Benefit can be made between the child’s date of birth and their 16th birthday (or their 20th birthday where still in full-time ‘non-advanced’ education or ‘approved’ training). The current rates are £20.30 per week for the eldest child and £13.40 per week for other children.
The detailed rules can be found at the following link on HM Revenue & Customs website here http://www.hmrc.gov.uk/childbenefit/
New rules are being introduced from 7 January 2013 whereby if a member of the household receives more than £50,000 annual income they will lose some or all of their eligibility to Child Benefit. Below is a summary of how the changes will work:
- Where one household member has annual income of more than £50,000, a claw-back of Child Benefit will operate equal to 1% of the benefit received for every £100 of income between £50,000 and £60,000.
- Once annual income reaches £60,000 pa the Child Benefit is withdrawn completely.
- It is the income of the highest earning household member which is used to complete any claw-back calculation.
- Note that where both spouses each earn below £50,000 pa then no claw-back will operate even though their combined income may well exceed £60,000.
- Income will need to be disclosed via a Self-Assessment tax return with any claw-back being collected in arrears either through PAYE or via the self assessment system.
Here are two examples to illustrate the child benefit changes:
- Mr & Mrs Smith have three children under 16 and earn £56,000 and £10,000 respectively. Under current rules they qualify for £2,450 pa in Child Benefit. Under the proposed changes 60% (1% x £6,000/100) of their Child Benefit will be clawed back leaving them with £980 net benefit.
- Mr & Mrs Jones also have three children under 16 and earn £40,000 each pa. As both spouses earn below £50,000 then no claw-back of Child Benefit will operate even though their combined income of £80,000 is greater than that of Mr & Mrs Smith above.
There are a number of concerns regarding the implementation of the these changes regarding confidentiality of income of individual taxpayers and that where family circumstances change, such as a separation or divorce, it could prove difficult to determine the amount of any claw-back. It is also highly likely that the changes will result in many more taxpayers having to complete self-assessment tax returns.
During November 2012 HM Revenue & Customs will be sending out over 1 million letters to taxpayers who are expected to be affected by the new child benefit rules. It is recommended that recipients of these letters should seek professional advice before opting to no longer receive child benefit, even where their expected annual income is expected to exceed £60,000.