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Child benefit changes: the lowdown

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Our need-to-know guide explains the cuts in Child Benefit.

The new child benefit regime came into force on 7th January, but many families are still unsure whether or not they will be affected.

As it stands, parents and guardians are entitled to receive child benefit of £20.30 for the first child and then an additional £13.40 per child after that.

From this week this will no longer apply to everyone.

Here is a round-up of all the key details.

What’s changing and who will it affect?

The new rules state that households in which at least one parent earns a salary of more than £50,000 will have their child benefit means-tested.

When the highest salary is between £50,000 and £60,000, child benefit will be reduced on a sliding scale – for every £100 over £50,000 threshold earned, 1% of child benefit will be deducted.
If at least one parent earns above £60,000, child benefit will be cut altogether.

If you are unsure as to how this sliding scale might affect you, it’s worth looking at the HMRC calculator to check what you are entitled to.

What’s the controversy?

The new rules have come under fire for some very obvious reasons. They state that child benefit will be affected should one parent earn above the £50,000 threshold, but it does not take into the consideration the total income of the whole household.

So take Family A – Mum earns £57,000 and Dad is a stay at home parent. Their total household income is £57,000. They will see their child benefit affected.

Now take Family B – both parents earn £49,900 and £40,000, making that a total household income of £89,900. They however will not have their benefit cut as neither parent earns above the threshold.

What else should I know?

It’s worth bearing in mind that the changes are based on your adjusted net income and not initial gross amount.

Adjusted net income refers to what you actually take home after various deductions have been made. So if you pay into a pension, that amount will not be included in your salary assessment. This may just be the perfect time to start squirrelling away some money into a pension pot!

Other ways you can lower your take home salary is if you sign up for medical insurance or lease a car through your employer. These things can be directly deducted from your salary, and can help lower your take home salary and bring you below the threshold.

Having said all of this, those earning below £50,000 should not just assume that they will be getting the full benefit. A parent or guardian earning £35,000 could still receive a reduced or no benefit in certain situations.

Example – Highest household salary is £35,000, however, there is also income through rental properties and/or monthly investment income. If this all this together is £50,000 or above it will affect the amount they are entitled to.

What do I need to do if I earn more than £50,000?

Whether it’s you or your partner that earns above the threshold, you need to complete a self-assessment tax return.

It’s worth noting that you will still receive the benefit until all calculations have been done, so anything overpaid to you will be taken back in the future through the tax you will pay. This is the High Income Child Benefit Charge.

Those earning above £60,000 can just choose to stop receiving the benefit, this is far simpler especially if you know you will definitely not be entitled to it.

However, experts say that it may be more sensible to carry on receiving the benefit over the year, so that you can boost your national insurance credits, which will help your future state pension.
Non-working individuals who receive child benefit for a child under 12 are entitled to receive national insurance credits which build entitlement to the state pension.

According to a recent report, when a high-earning parent decides to not receive child benefit payments as a result of the new changes, it is important that a child benefit claim form is still completed.

The entitlement, rather than the payment, of child benefit will ensure that NI credits continue.

This could be especially important if you are having a break from work to look after children full time. Remaining enrolled might also make life easier if you need to start receiving child benefit again.

I’m self-employed – what about me?

This change applies to you too, but you will not receive a letter from the HMRC. As with any other tax return for self-employed people, you will have to do most of the legwork yourself.

Certain individuals being taxed through the Pay As You Earn system (PAYE), are also required to register for self-assessment and to complete a tax return.

Even where the charge is collected through a change to an individual’s tax code in future years, they will still need to complete a tax return.

What if my income changes?

If you see a fall in your take-home salary, you will be able to claim the benefit back later. Same goes for those who see an increase in their salary above the threshold. You will be required to pay the overpayments later after you complete a self-assessment tax return.

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