Child Benefit changes clarified

One million households affected by new Child Benefit rules that will cut the amount they are entitled to receive are to be sent letters by HMRC next month. 

Households in which an individual's income exceeds more than £50,000 and who claim Child Benefit - the individual or the partner - will be affected by a new tax charge that takes effect from 7 January 2013.

Those liable to pay the new high income child benefit charge (HICBC) can either continue receiving Child Benefit and pay the charge through self-assessment , or choose to stop receiving the benefit altogether.

Around 1.2 million families are expected to be affected by the new tax charge, with around 500,000 expected to be brought into self-assessment.

The BBC said that 'a flood of calls for advice is expected' from people 'confused by the change or looking to avoid losing the benefit by legal means, for example, making additional pension contributions.'

The tax charge will be one per cent of the Child Benefit paid for every £100 of income between households earning between £50,000 and £60,000.

Although the tax charge will be less than the total amount of Child Benefit, those earning £60,000 or more will have the benefit withdrawn completely.

Child Benefit currently stands at £20.30 a week for the first child and £13.40 for each child after that. According to the BBC, families with three children and at least one parent earning over £60,000 will lose out on around £2,450 a year.

As reported in the press, a HMRC spokesperson said: "The unprecedented scale of the deficit has meant that the government has had to make tough choices to reduce public spending."

"In a period when the government is having to reduce welfare spending, it is very difficult to justify continuing to pay for the child benefit of the wealthiest 15% of families in society."

The Government has also clarified the rules surrounding the charge, making it easier for those to reverse their decision to opt out should their income unexpectedly fall between £50,000 and £60,000.

However, the President of the Chartered Institute of Taxation CIOT Patrick Stevens said the new rule would still cause difficulty for those with a fluctuating income, who gain or lose a partner or those who don't know how much their partner earns.