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Child Benefit – Tax

May 25, 2012 | Blogs

The fact that child benefit was on the government hit list was widely touted before the budget. The 2012 Finance Bill revealed the details.

Most press comments had referred to Child Benefit being withdrawn. It is, in fact, going to be taxed.

If a taxpayer has income of over £50,000, and either they or their partner receive child benefit, then a tax charge will arise. For the purpose of this tax, ‘partners’ consist of married couple, those in a civil partnership, and those living together.

The £50,000 is net taxable income which means it is income before the personal allowance is given; the income from child benefit is not included in this figure though.

If you earn between £50,000 and £60,000 then only part of the benefit will be taxed. You will pay 1% of the benefit for every £100 that you income exceeds £50,000. So if you earn £52,000 you will pay 20% of the benefit received in tax. If you earn £60,000 you pay 100%, at that level the benefit has effectively been withdrawn.

If you earn through PAYE and are not in the self-assessment system, HMRC’s current proposal is to collect the tax via your tax code.

The Government, in their wisdom, have decided that this tax will be charged from 7 January 2013! This means that in the 2012/13 tax year a taxpayer will be subject to tax on only part of their child benefit, that received from 7 January 2013 to 5 April 2013.

 

A strange date from which to introduce a new tax, and a strange way of doing things overall.

Does this not affect the principal of independent taxation? Will you have to declare to your partner your earnings? (even in this day and age some people are still quite secretive about these things)…

You could end up paying tax on income that your partner has received…

The tax is calculated on the benefit that you are entitled to receive, not what you actually do receive. If a taxpayer has not bothered claiming the benefit they will still get taxed on it…

If you do not want to pay the new tax charge, you can decide not to claim the benefit. To do this though you must go through the proper procedure to ‘disclaim it’…

There are still many  unanswered questions, more detail will be released in the coming months.

 

Graham Berry FCCA

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