Child benefit changes

Squeezed pound coinMore than 1 million families are affected by changes to the child benefit system that will result in them losing their benefit altogether, or having their payments reduced.

Here, we explain who is affected by the child benefit changes and what, if anything, you need to do.

What is happening to child benefit?

Under current rules, all parents and guardians receive child benefit of £20.30 a week for the first child and £13.40 for each child after that. This amounts to £1,752 a year for families with two children.

But from January 2013, households where at least one person earns more than £50,000 will have their child benefit means-tested, so depending on their income, it will either be stopped or clawed back through extra tax payments.

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The benefit will be lost entirely for those earning £60,000 or more, while families where one parent earns between £50,000 and £60,000 will see their benefit reduced on a sliding scale, so that 1% of the benefit is lost for every £100 above £50,000 that they earn.

Only the highest earner in a household has their income taken into account when deciding whether child benefit is due to the family.

Changes to the rules have prompted much controversy, mainly due to the fact that two parents each earning £49,000 will still continue to receive child benefit in full – even though their combined salary is much higher than households where one earner has an income of £60,000.

Some experts claim the cuts could in fact be illegal under EU law because they discriminate against British workers whose benefits are easier to claw back than those of other EU citizens working here. HM Revenue & Customs has dismissed these claims.

Do the thresholds relate to my gross salary?

No, importantly the £50,000 and £60,000 thresholds relate to your 'adjusted net income', rather than gross salary.

For example, your pension contributions are taken off your pay before your 'adjusted net income' is arrived at. That means if you're earning £52,000, but make pension contributions of £250 a month (£3,000 a year), you shouldn't receive a letter because this brings your income to below £50,000.

Other ways to reduce your adjusted net income, and remain eligible for child benefit, include using what is known as 'salary sacrifice', whereby you use some of your salary to buy childcare vouchers, medical insurance or to lease a car.

What happens if I am eligible for reduced child benefit or am due to lose it?

People earning between £50,000 and £60,000 will have to fill in a self-assessment tax return and any child benefit they are no longer entitled to will be clawed back through the tax system. You will never pay more tax than the benefit received.

The changes means that half a million people who have never filled in self-assessment forms before will now have to do so if they want to continue to receive child benefit.

Those earning £60,000 or more can choose either to give it up completely, in which case they won’t have to worry about filling out a tax return unless they normally complete one, or they can continue to take the benefit over the year, fill in a tax return and have it taken back then. 

If you missed the opt-out deadline of 6 January, you can still opt out, but you will have to complete a self-assessment tax return for the 2012/13 tax year. This must be submitted 31 January 2014 and you will be required to repay the Child Benefit you receive between now and April.

If you opt out before 5 April, which is when the current tax year ends, you shouldn't have to fill out a tax return for the 2013/14 tax year, provided your payments stop before the beginning of the new tax year.

Claiming child benefit can help you build up national insurance credits, which in turn can help protect your future state pension. However, according to HMRC, if you have chosen to stop getting the benefit, you will still continue to accrue these credits.

If you have another child in the future, and your income is over £50,000 it is important that you complete a child benefit form even if you decide not to receive any payment. This will protect your entitlement to other benefits such as Guardian's Allowance, and ensure your child is automatically issued with a National Insurance number before their 16th birthday.

Will I get a letter about changes to child benefit if I'm self-employed?

No, only people in the Pay As You Earn (PAYE) system who earn more than £50,000 are being sent letters about changes to child benefit - not those who are self-employed or a partner in their own business.

It is your responsibility to pay the extra tax, even if you don't hear from HMRC, so you will need to let them know whether you want payments stopped or you if you want them to continue and pay extra tax.

What happens if my income fluctuates or falls in the future?

Families which expect one parent to earn more than £60,000, and so do not claim child benefit, but then subsequently have a fall in income, will now be able to claim the benefit retrospectively.

If there is any doubt about how much income you will receive, you should continue to claim child benefit. If during the course of the year your income exceeds the threshold, payments can be clawed back at a later stage via the self-assessment system.

What if I am separated or divorced?

If your ex-partner earns more than £50,000 but you receive child benefit for your children and you earn less than this amount, you will be allowed to keep the payments in full.

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Last updated: almost 2 years ago