10 December 2012

Child Benefit Taxation

Yet another fine mess...

For very many years Child Benefit has been paid (primarily) to mothers of children as a tax free benefit. In their wisdom the government have decided that those families earning over £50,000 should now receive a restricted amount and those earning over £60,000 per annum should not receive anything.

The tax system is being used as the means of collection. This provides yet another layer of administration as we already have one form of income related benefit in the form of Tax Credits which is monitored by HMRC and we now have yet another system.

Regardless of the political element as to whether people with children should receive any help from the State this new system creates some difficult situations. Often the tax will be payable by a spouse who does not receive the benefit which seems illogical in itself but there will be cases where couples do not know their partner's income and therefore do not know if a liability is due. Without going in to detail at the morality of this the purpose of this email is to highlight a predicament some of you will face.

HMRC have now started to issue letters to taxpayers although I am not aware whether these are being sent to those who may be affected based on their income or to all who are claiming Child Benefit.

a) If either you or your partner have income more than £60,000 per annum probably cease to claim Child Benefit with effect from 7th January 2013

b) If either of you have income lower than this then you should probably continue to claim the Benefit but be aware we will require details when completing you Income Tax Return to April 2013.

The tax charge, if there is one, is payable by the partner in receipt of the highest income.

Even though your income is too high your family may continue to receive the benefit but you must then tell us the amount received when completing your Tax Return.

If your family continues to receive the benefit we may need to know the amount you receive and also, if we do not complete your partner's Tax Return, the amount of taxable income they earn.

For the self-employed and in particular director/shareholders of companies the income distribution from your company now has to consider the rate of tax, the level of tax credits and the taxation of Child Benefit.

Ian