As of January 7th, many households with a combined taxable salary of more than £50,000 will start to have their child benefit withdrawn, which is £20.30 a week for the first child and £13.40 for any other children.
The change will happen via a new tax levied on the highest earner in the household at 1% of the value of child benefit per £100 of income beyond £50,000. So someone earning £55,000 who has 2 children would pay an extra £876 in tax – half of their £1,752 annual child benefit. Those earning more than £60,000 will have it withdrawn altogether. This could mean that a family with 2 salaries of £49,999 each (£99,998 in total) would still receive their Child Benefit in full. On the other hand a family with just one salary of £60,000 would lose the benefit completely.
The amounts people owe will be collected via the self-assessment regime and HMRC will send out a tax return to those expected to be hit with a charge. This is a pain for many higher earners who have in recent years been told they no longer need to fill in a tax form because their financial affairs are relatively straight forward.
Making extra pension contributions is expected to be the most popular way to reduce taxable income below the new thresholds. Individuals might also enter a “salary-sacrifice” arrangement with an employer in return for tax-free benefits in kind- such as an additional holiday entitlement or childcare vouchers. This would allow someone earning over the threshold to bring down their taxable salary in order to keep their child benefit.
There is an obvious unfairness to this legislation and begs the question has it really been thought through?
by Tom Calvert