New Child Benefit Charge will impact thousands in the legal profession
19 Nov, 2012
The new High Income Child Benefit Charge, due to come into force on 7 January 2013, will impact a huge number of legal professionals and their families, says leading national audit, tax and advisory firm Crowe Clark Whitehill.
A new scheme, part of the Government’s austerity measures, introduces self-assessed means testing for family allowance recipients, and will claw back child benefit from individuals and families earning £50,000 or more. The new charge will affect over 1.2 million families, with approximately 70% losing all of their child benefit.
In assessing means for the purposes of the charge, HMRC looks at the highest earning person in the family unit, rather than the person actually receiving the child benefit.
Louis Baker, head of Professional Practices at leading national accountancy firm Crowe Clark Whitehill, advises that many legal professionals could find themselves losing all child benefits and face a complicated self-assessment procedure through the new charge.
“The child benefit is reclaimed by a tax charge where a mother or her current relationship partner earns in excess of £50,000. The reclaim is on a sliding scale basis, and the benefit will be fully reclaimed where the income of either partner is over £60,000 per annum.
“What may be surprising is that the reclaim is collected via the tax return of the highest-earning partner in the relevant relationship. Therefore, if child benefit is received within your household, it is quite likely that it will be fully reclaimed from you via your tax return.”
Those affected by the charge have two options – pay the charge from January or opt out of receiving child benefit, thus avoiding the charge. For the profession’s high earners, opting out of receiving child benefit entirely may be the easiest option.
Louis Baker (pictured) says:
“If this is relevant to you, you may conclude with your partner that it’s simplest for you to disclaim from receiving child benefit altogether.
“However, for new mothers a tedious point of detail is that they should register to claim Child Benefit, and then disclaim it if they wish to avoid the tax charge complication. This initial claim establishes an on-going NIC credit for the mother.”
For those on or just above the £50,000 earnings threshold, help could be available in the form of employer salary sacrifice schemes. Firms that have salary sacrifice schemes in place could potentially save employees earning between £50,000 and £60,000 thousands in tax charges.
Susan Ball, director of Crowe Clark Whitehill’s Employee Advisory Group, says:
“For employees who earn just over the £50,000 threshold, it may be worth looking at a scheme to help manage the new charge. Employees on the £50,000 threshold could potentially avoid the charge by making a higher pension contribution, buying extra holiday or entering into one of their employer’s salary sacrifice schemes, such as childcare vouchers or cycle to work.
“These measures could save the employee from being caught in the child benefit clawback, and potentially also save income tax and national insurance.”