Take Advice on Child Benefit Before Changes Come Into Force

News release

11th December 2012

High earners who claim Child Benefit need to be aware of new rules which will introduce a tax charge on some claimants from next month.

Michael Cope from leading chartered accountants Duncan & Toplis says those affected need to start planning for the change as soon as possible.

From 7th January 2013 households where at least one person earns an income of more than £50,000 (from all sources, not just salary) will have their Child Benefit partly or fully clawed back by a tax charge.

Her Majesty’s Revenue and Customs (HMRC) wrote to people earning over £50,000 last month but Michael says many people affected may not have received a letter owing to changes in financial or personal circumstances or may simply have put the issue to the back of their mind.

He recommends that high earners seek advice from Duncan & Toplis before deciding whether or not to continue claiming Child Benefit.

“As with any set of rules it’s worth considering if you should stay as you are or whether you can take some steps to protect yourself from the changes,” he said.

“Child Benefit itself is not being made liable to tax and the amount that can be claimed is unaffected by the new charge. But if they do not wish to pay the new charge, claimants can choose to forego the Child Benefit payments to which they are entitled.

“The £50,000 figure is based on adjusted net income, which means that allowable adjustments can be taken into account. Child Benefit claimants could consider making additional pension payments into workplace pension schemes or taking up company medical insurance options or other benefits such as childcare vouchers.

“Such deductions could reduce the impact for individuals earning between £50,000 and £60,000 and minimise the reduction in Child Benefit or even preserve it.”

One percent of any Child Benefit received is clawed back for each £100 of income in excess of £50,000. At an income level of £60,000 all benefit will be reclaimed via the tax charge.

“It’s important to consider your options as the marginal level of taxation for those earning  between £50,000 and £60,000 with two children is nearly 60% - and the tax rate is in excess of 100% if eight children are claimed for!” said Michael.

“Remember too that the person who actually receives the benefit may not be the person taxed, because in partnerships where both partners have an adjusted net income of over £50,000 the charge applies to the higher earner.”

To speak to a tax adviser about the changes to Child Benefit contact your nearest Duncan & Toplis office by visiting www.duntop.co.uk or email michael.cope@duntop.co.uk

Example

The Child Benefit for two children amounts to £1,752 per annum (first child at £20.30 per week and second child at £13.40 per week). The taxpayer’s adjusted net income is £54,000. The charge is calculated as £17.52 (1% of £1,752) for every £100 above £50,000. Therefore the income tax charge will be £700.80 (40 x £17.52). In this example the effective tax rate on the income exceeding £50,000 is 17.52%.

Notes to editors

• Duncan & Toplis was established in 1925 and has since grown into one of the largest independent firms of chartered accountants in the Midlands.
• Duncan & Toplis offers a wide range of services to small, medium and large-sized family businesses, from accountancy, audit and tax to payroll, human resources and computer services.
• The business employs around 300 staff, of whom 85 are currently engaged in professional training.
• Duncan & Toplis is listed in the top 30 UK accountancy practices in Accountancy magazine.

Jez Ashberry
Shooting Star PR
01522 528540
jez@shootingstar-pr.co.uk
www.shootingstar-pr.co.uk
t: @jezashberry

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