Child benefit: New tax charge on horizon
High-earning households have less than a month to decide whether to stop receiving child benefit payments or pay a new tax charge by self-assessment.
The deadline reminder from HMRC follows the Government’s decision to introduce the new high-income child benefit charge (HICBC) from 7 January, which could affect around 1.2 million households.
Child benefit payments will begin to be clawed back from those earning more than £50,000 a year, with a one per cent charge on the benefit paid for every £100 of income over this threshold. Households earning £60,000 or more will have the benefit withdrawn completely.
Those liable to pay the new HICBC can either continue to receive benefit and pay the charge through self-assessment, or choose to stop receiving the benefit altogether.
The tax charge remains less than the amount of child benefit, meaning some who chose to opt out could be forfeiting benefits they are entitled to. But some commentators have warned that the complex nature of the new system could cause problems for households further down the line regardless of the decision they make before 7 January.
According to the Telegraph, many families feel they have been given insufficient time to prepare for the changes, which could see around 500,000 families having to complete self-assessment tax forms.
However, HMRC’s chief executive Lin Homer said: “Over 680,000 people have already looked at information on HMRC’s website that explains the changes and what steps those affected can take. It is really easy to use and will help families come to a decision.”
Child benefit currently stands at £20.30 a week for the first child and £13.40 for each child after that. Families with three children and one parent earning over £60,000 could lose out on around £2,500 a year.
Households may be able to legitimately reduce their HICBC by paying more into a company pension scheme, salary sacrifice or through charitable donations, therefore reducing their adjusted net income.
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