Families with one parent earning more than £50,000 will lose part of their Child Benefit on Monday.  It will be lost altogether where one parent earns more than £60,000.  Putting aside the debate over whether this is a “fair” change to the benefits system for a moment, there seems to be a lot of confusion around how the Child Benefit changes are going to work.

When do the changes take effect?

From Monday 7 January 2013 onwards.

How much will we lose?

Child Benefit is currently £20.30 per week for families with one child, with an additional £13.40 per week for each extra child.  If you have two children the annual benefit works out at around £1,752.  The benefit is gradually phased out where one parent earns between £50,000 and £60,000.  You can get an estimate of the impact on GOV.UK.

What do I need to do?

Child Benefit changes

If you are affected you have two options:

  • Keep getting Child Benefit
  • Stop getting Child Benefit

If you keep getting Child Benefit then you or your partner will have to declare these payments by completing an annual self assessment tax return for the 2012-2013 tax year and for each year afterwards that you continue to receive Child Benefit.  You or your partner will then have to pay a higher tax amount – effectively to pay back all or a portion of the Child Benefit received from 7 January 2013 onwards.

Who pays is determined by who gets the Child Benefit and income levels.  If you are entitled to Child Benefit and your earnings are over £50,000 AND higher than your partner’s earnings, then you are the one who has to declare it on your tax return.  If you are entitled to Child Benefit and your partner’s earnings are over £50,000 and higher that your earnings then they have to declare it instead.

I don’t already complete a tax return

If you or your partner end up having to complete a tax return when you didn’t have to before, you will need to register for self assessment.  This should be done “as soon as possible” but no later than 5 October 2013.  The easiest way to register is to complete form SA01.

Opting out

If you decide to stop getting Child Benefit then you won’t have to pay the extra tax charge or complete a tax return (unless you already do one).  Only the person who gets the Child Benefit can stop the payments.  You can restart the payments at any time.

If you want to stop them before the tax charge kicks in then you have to do so BEFORE 7 JANUARY.  You can do so by completing an online form.

Does it impact on NI credits?

If you receive Child Benefit payments then you get National Insurance credits – i.e. you protect your entitlement to the State Pension.  Opting out of receiving Child Benefit makes no difference – as long as you are entitled to Child Benefit you continue to get NI credits.

How is income defined?

The important number is your “adjusted net income“.  This is your total taxable income including employed and self employed earnings, taxable benefits, interest income and dividends, property income, and pensions.  You then adjust for pension contributions, gift aid donations, etc.