Ilminster chartered accountant Robert Stone concerned that HMRC’s new Child Benefit charge not workable
Parents in Somerset with incomes of over £50,000 should be prepared to receive a letter this autumn from HM Revenue and Customs, containing details about the new highly criticised Child Benefit charge, which will be implemented from 7 January 2013 onwards.
The government believes that around 1.2 million families will be affected by the new tax charge, which will result in roughly 70 per cent of those households losing all their Child Benefit, with the remaining 30% losing just a part of it.
Ilminster chartered accountant Robert Stone said: “The government says the tax is designed to make high earners do their bit for the deficit, but it will certainly hit some families harder than others and it is questionable as to whether it is fair to target the single income earners, when they are already paying more tax than a household with two earners producing the same income.”
“My concern is that the system may prove to be unworkable. It is estimated that the charge will generate an extra 500,000 tax returns at a time when HMRC is struggling to cope with its existing workload. Taxpayers may find their confidentiality breached as one party in a relationship is asked to disclose information about another and we will have a situation where one party receives Child Benefit, but another gets the tax bill for it.”
A family with only one person earning £60,000 and over will have all their tax benefit cut, while another family with a joint income of £60,000, ie two people earning combined salaries of £60,000, will remain unaffected.
A tax payer earning over £50,000, but under £60,000 will have to pay a new income tax of one per cent of their family’s Child Benefit for every £100 of income over £50,000. People can, however, choose not to claim for Child Benefit, in order to avoid the tax charge.
“The tax will be calculated on a person’s adjusted net taxable income (before personal allowances) for the current tax year – 2012/2013. This means there is scope to reduce net income below £50,000 by deducting losses, gross pension contributions and gift aid,” said Robert. “But these strategies will need to be continually reviewed, until a couple’s children are no longer eligible for Child Benefit.”
Although it is possible to opt out of Child Benefit (applicable to those not wanting to pay the extra tax), Robert Stone emphasised the importance of still going through the Child Benefit claims procedure even though there would be no payment. “This will ensure that an individual receives National Insurance credits, which will safeguard their entitlement to a State Pension.”
Mr Stone said that the Child Benefit charge will be collected through self assessment and PAYE. “HMRC will send out tax returns to complete during April 2013, but in the meantime it is best to wait until the letter from the tax office arrives, as it will explain the different options available and what steps to take next.”