New child benefit rules are set to cause a shock for people earning more than £50,000 says a Milton Keynes tax guru.
Changes to be introduced to child benefit rules in January 2013 will mean some people will get a tax bill as the government uses this method to clawback money paid out.
Janet Pilborough-Skinner, private client director at Mazars, in Midsummer Boulevard, said: “Some people are going to have a shock when they submit their 2012/13 tax return and find they have a tax bill because they didn’t realise they or their partner needed to disclaim child benefit. The more children you have in your household, the more this will cost.”
Families in which one individual earns more than £60,000 a year will lose all their child benefit payments by tax clawback from January 7. If either people in a relationship earns more than £50,000, child benefit will be tapered away on a sliding scale.
In any one household, the couple could each earn £50,000 each, without losing their child benefit payments. However, if one earns £50,001, the government’s clawback would begin, and if an individual earns £60,001, all child benefit received from January 2013 onwards would be paid back via HMRC’s self-assessment system.
The parent receiving the child benefit payments will continue to receive them but the ‘high earner’ will repay them to the government by way of a clawback.
She added: “Not many people realise how fraught and potentially complicated the government’s move to withdraw child benefit from high earners will be. It’s been shoehorned into the way individuals are taxed and will cause disproportionate hassle compared to the amount of revenue it raises.”
The government intends to set up a system where people can volunteer not to receive child benefit. Disclaiming child benefit is an action that has to be taken by the person receiving it – this becomes effective the following week.
The rules will apply to couples whether individuals living together, spouses or civil partners. A couple setting up home together with existing children will need to decide if they need to disclaim before or very quickly after moving in together, where one earns more than £50,000 per annum.