Child benefit

Families with an adult earning over £50,000 and in receipt of child benefit are to get a letter from HMRC outlining changes to their allowance.

The new high income child benefit charge comes into force in January 2013 and will affect anyone earning over this amount. In essence, the benefit will be withdrawn gradually from those where one parent or partner earns over £50,000 and withdrawn entirely from those where someone earns in excess of £60,000 a year.

The ICAEW has issued advice for those impacted by the change. This includes ‘talking to your partner about how the new rules could affect the family’s finances, ‘speak to your partner about their income’ as ‘you need to know if theirs is more than £50,000 and if so, which of you earns the most’.

It says the letter from HMRC will ask how much ‘individual income’ a recipient of the benefit or their partner may earn. This is not just salary and includes dividends, income from rental properties and holiday homes, self employed earnings, interest on savings and pensions.

The organisation also suggests taking into consideration contract work and possible forthcoming projects affecting your income – does this take you or your partner further over the threshold?

Anita Monteith, ICAEW tax faculty manager, said:

‘The charge will increase complexity and compliance costs and we are worried we are going to see the same operational problems arising that we saw for tax credits – especially for those with fluctuating incomes.’

‘If you do need help, please contact an ICAEW chartered accountant. We are continually urging government to simplify the taxation system to ensure it is as clear and efficient as possible. However, this charge will add considerable complications to the tax system, particularly for those brought within the Self Assessment system for the first time.’

All taxpayers affected by the charge will need to declare their liability through Self Assessment. HMRC estimates that up to 500,000 taxpayers who do not currently complete a Self Assessment return will be liable and have to complete a tax return. If you are one of them, you need to start collecting together your paperwork ready to file a paper return, due in October 2013, or an online Self Assessment return in January 2014.

The ICAEW advice follows information sent to MPs warning of the potential problems that could arise from the change. More details on the briefing can be found here.