Families could lose £1,300 of child benefit

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child benefit changes

child benefit changesAround 1.2 million families are set to effectively lose some or all of their child benefit when the new changes come into force early next year.

From January 2013, households receiving child benefit where one parent or partner earns more than £50,000 will be hit with a new income tax charge. This "penalty" is designed to cancel out some or all of the benefit of receiving the payments.

About 70% of the affected families will lose all of their child benefit, while the average loss will be roughly £1,300 per year.

The Institute of Chartered Accountants in England and Wales (ICAEW) said families will effectively be given a choice between giving up their child benefit completely or paying it back later via the tax charge.

What do the changes mean?

The regime takes effect from 7 January 2013, and HM Revenue & Customs (HMRC) is expected to give out letters later this month to inform people of the changes.

Basically, the new system will see child benefit gradually withdrawn from households where someone has an income above £50,000.

At that level, the new income tax charge is 1% of the amount of child benefit for each £100 of income between £50,000 and £60,000. For those earning above £60,000 the charge will be the same as the total amount of child benefit received - meaning they will effectively receive nothing.

For example, a family with two children where one parent has an income of £54,000 currently receives £1,752 a year (£20.30 a week for the eldest child, plus £13.40 a week for the other child). Under the changes, their tax charge would be 40% of £1,752, which is £700. If the parent's income was £62,000 the tax charge would be for the full £1,752.

Working out exactly how you will be affected by the changes can be difficult, but it is important to take time out to see what they mean for you.

Self-assessment

The money that people owe will be collected via the self-assessment regime. If you are hit with a charge, you will then be required to complete a tax return and send it to HMRC.

The ICAEW said: "HMRC estimates that up to 500,000 taxpayers who do not currently complete a self-assessment return will be liable and will have to complete a tax return.

"If you are one of them, you need to start collecting together your paperwork ready to file a paper return, due in October 2013, or an online self-assessment return in January 2014."

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