Changes to the Child Benefit system came into effect today. So what are the changes and how do they affect you?
What has changed?
Child Benefit used to be a universal benefit available to all parents however, as of today (7th January) it has become means-tested.
Child benefit will now be withdrawn gradually once one person in a household earns £50,000. The rate of withdrawal is 1% of child benefit for every £100 earned over £50,000, resulting in total withdrawal once earnings of £60,000 have been achieved.
So will you stop receiving child benefit from 7th January 2013 if either parent earns over £50,000?
Not unless you opted to stop receiving child benefit, the deadline for which was 6th January 2013.
If you did not opt out then you will continue to receive child benefit as before. However, the person earning over £50,000 per annum will pay a tax charge via self assessment which effectively means that they repay part of their child benefit. Anyone earning over £60,000 will repay their entire child benefit.
The option of opting out was introduced so that people were not forced to register for tax self assessment and go through the administration headache to simply repay child benefit they were not entitled to. Those affected by the £50,000 limit must register for self assessment by 5th October 2013.
Should I have opted out as I earn over £50,000?
Well not necessarily. Even if you are no longer entitled to child benefit there is nothing to stop you receiving it and then saving it in a high interest savings account before later repaying it via self assessment, while keeping any interest earned.
Don't forget some poeple's earnings may fluctuate meaning that they may regularly move above and below the earnings threshold making opting out and reapplying a hassle in itself.
Also don't forget that claiming child benefit can help protect your state pension.
Is it too late to opt out?
Technically the deadline has passed but you may be able to still opt out if you haven't received a payment since 6th January. Call HM Revenue & Customs on 0845 302 1444. If you have already received a payment then you can still opt out but you still have to complete a self assessment tax return before 31st January 2014 and repay any amount received.
Is there anyway I can avoid the extra Income Tax and retain my child benefit?
If you reduce your taxable income below the threshold then you will retain your child benefit without extra Income Tax payments. You could pay into a pension plan or purchase childcare vouchers which both qualify for tax relief. However, I wouldn't advise trying to keep your salary under £50,000, by say not doing overtime, as if you do the sums you will probably be out of pocket.
image by Clare Bloomfield / FreeDigitalPhotos.net