Taxation of Child Benefit

You may have read in the press or heard in the news that the Government are now looking to tax Child Benefit, or as some people still refer Family Allowance. This may affect you or members of your family.

Child Benefit is paid to families where children are below 16, or below 19 but still in full time education, and until now has never been a taxable income.

With effect from the 7th January 2013 Child Benefit does become taxable on any taxpayer who earns over £50,000 per annum. There is a tapering off for earners between £50,000 and £60,000 per annum where only a % is taxed. For those that earn above £60,000 there is no taper and all of the Child Benefit received is taxable. Income is determined as Salary, Benefits in Kind, Dividends, Rental Income etc.

This system seems unfair as a family, where both parents/guardians earn £40,000 each per annum, are considerably better off than their neighbours, assuming the neighbours earn £65,000 and £15,000, even though the total income for each family are the same, the second family suffers with Child Benefit being taxed.

For those who do not complete a Self Assessment Tax Return the liability is to be collected via the PAYE coding system, which means that from 7th January 2013 to 5th April 2013 people earning above this amount will already be accruing an underpayment of Tax. Moving forward a coding adjustment will be used to collect from monthly salaries.

For those people who are in Self Assessment it can also be collected via your Self Assessment tax return, should your Tax Code not be correctly calculated.

This means that remuneration planning has never become as important and this may mean a review of your income strategy.

If you wish to discuss this or any other taxation matter which may be giving you concerns then please do not hesitate to contact us.