The rules for Child Benefit are changing

 

From 7th January 2013

 

Any household receiving child benefit where one of the parents or guardians is earning more than £50,000 a year.

It is important to understand that the changes will affect you if either you or your partner is earning more than £50,000 a year. Even if one of you is earning very little or nothing, it will still affect you if the other partner is earning more than £50,000.  

 

The person earning more than £50,000 a year will have to complete and submit to HMRC a self-assessment tax return each year.

This will result in that person paying extra tax that will effectively reduce the value of the child benefit to the extent that, if the person is earning more than £60,000 a year, the whole value of the child benefit will be wiped out by the increased tax liability.

 

For people earning above £50,000, increasing your pension contributions could help ensure that you keep hold of your full entitlement to child benefit. The HMRC looks at your "adjusted net income" rather than your gross salary when deciding whether or not you will lose your child benefit.

To reduce the impact, you can use your salary to buy childcare vouchers, medical insurance or Gift Aid to make charitable donations. Known as 'salary sacrifice', this can also help bring your income to below the threshold.

For example, basic rate tax payers signing up to the childcare voucher scheme now can buy up to £55 of vouchers a week. These can be used to pay for registered childcare at a nursery, playschool, childminder or after-school club.

To view a comprehensive question and answer article on the new rules and how they may affect you, click here.

If you are interested in learning more about Gift Aid and salary sacrifice, click here.

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