By the time you read this blog and following intense political debate, the new rules on Child Benefit will be upon us.
Notwithstanding the “rights” or “wrongs” of this, if you are one of the millions who have been affected, then it’s worth taking the time to check that you have taken full advantage of every tool at your disposal to optimise your claim.
If you or your partner earn over £50,000 of Adjusted Income in a tax year and also claim Child Benefit in that year then you are likely to be affected by the new rules. These rules came into force on 7 January 2013.
Basically those affected will fall into one of three categories: –
1. You or your partner earns significantly over £60k per annum.
If that’s the case then the likelihood is that your child benefit will be extinguished under the new rules and there will be little action you can take to change that.
2. You or your partner earn between £50k and £60k per annum.
If you fall into this category then it’s possible that there are some actions you could take to reduce the effect of the changes. But the more the highest income exceeds £50k then the more difficult it becomes.
3. Neither you nor your partner earns over £49,999.
You will not be affected by the rule change and should continue to receive your Child Benefit in full.
A person is considered to be your partner at any time if they are married to you and not separated from you or are not married to you but you are living together as husband and wife. The same rules apply to civil partnerships.
Adjusted income for the purpose of calculating eligibility to Child Benefit is Gross Taxable Income after certain “allowable” deductions such as some donations and pension contributions.
If you fall into category 2, then there may be some things you can do to help maximise your entitlement. The benefit you can achieve will very much depend on your individual circumstances.
If the highest earner in the family is self-employed or receives income from a family owned business then it is likely that the opportunities to optimise claims will be greater as more planning can be put in place to determine the level of taxable profits or taxable income you receive each tax year.
Areas you could look at include the potential for equalising incomes, the timing of salary payments and dividends, payments to pensions and donations to charities. All of these could reduce the assessable income figure for Child Benefit purposes.
The amount of Child Benefit you receive is calculated based on the income you declare to the taxman on your tax return each year. If you haven’t filled in a tax return in the past, you may well have to complete one in the future.
If you are affected and take no action, you will lose 1% of the full Child Benefit award for each £100 of adjusted income between £50,000 and £60,000.
If you or your partner’s adjusted annual income is over £60k your “charge” will equal all of your entitlement, so you will have to pay back any child benefit that you have received.
If you are in employment, any charge due can be collected under PAYE by way of a reduction in your tax code. If you are not taxed under PAYE because you are self-employed for example, you may receive a demand from H M Revenue & Customs or it will be collected through your self-assessment tax return.
If you think a charge against your Child Benefit may be due for this current tax year ending 5 April 2013 you must notify the taxman by 6 October 2013.
If you are unsure about how the new charge will affect you or would like to discuss how you may be able to reduce the charge on your entitlement, please get in touch with me by calling 020 8989 5147 or email on firstname.lastname@example.org