Do you receive Child Benefit…You Must Read !!!

The Finance Bill imposes a new income tax liability, if a taxpayer has income over £50,000, where either they or their partner is entitled to child benefit. This will come in from 7th Jan 2013. It will be taxed on the partner with the highest income. If your income is less than £50,000 and your partner’s income is also below £50,000, then the child benefit is not taxable.

For the current year (2012/13) taxpayers will pay income tax on a part of their child benefit i.e. that received for the period 7th January 2013 to 5th April 2013. For future tax years, they will be taxed on the entire child benefit they are entitled to in each fiscal year.

 

If your income is between £50,000 and £60,000 you will have to pay income tax of 1% on the amount of your child benefit you are entitled to in the fiscal year, for every £100 of your income that exceeds £50,000.  If your income is greater than £60,000, you will pay an income tax bill that equals the amount of the child benefit.

 

For example, if you have income of £54,000 and your partner is entitled to child benefit for 2 children of £1,752 for the whole year, the income tax payable will be 40% of £1,752 i.e. £700. The percentage is determined as follows: £54,000 less £50,000 = £4,000 , £4,000 ÷ 100 = 40%

Responsibility

The person who is liable to pay the income tax charge on the child benefit is responsible for notifying HMRC of their chargeability. Employees who are entitled to child benefit, with income greater than £50,000 must notify HMRC to avoid penalties. Huge new extra admin burden for employees !!

 

Child benefit claimants will be able to decide not to receive child benefit if they or their partner do not wish to pay the new income tax charge. You can make a one off permanent HMRC disclaimer.

 

We will provide some important Tax Planning Tips next week….