What is it?
From January 7th 2013 any household in receipt of Child Benefit and with an income of more than £50,000 a year could be subject to a new Child Benefit charge.
The charge applies if you or your partner have a taxable income of over £50,000 as individuals. Your joint income is irrelevant – a couple where both are earning £49,000 are not affected by the charge. It doesn't matter whether it is you or your partner who claims Child Benefit.
The charge also applies whether or not the children in your household are biologically related to you. If you live with someone who receives Child Benefit and you have an income more than £50,000 then you are affected by the charge.
The system is based on self-declaration by tax payers.
How much will I be charged?
If you or your partner have an income of more than £60,000 a year then the Child Benefit charge will be the same value as the total Child Benefit you receive (currently £20.70 for the first or eldest child, £13.70 for subsequent children). In this situation you may instead choose to stop receiving Child Benefit.
If you or your partner have an income of between £50,000 and £60,000 a year then the Child Benefit charge will be less than the value of the Child Benefit you receive. The charge is 1% of the Child Benefit you receive for each £100 of income you have over £50,000 a year. This means that an income of £55,000 would incur a charge of 50% of your Child Benefit.
Is my taxable income over £50,000?
The income definition used to work out the Child Benefit charge is the same as the income definition in the tax system. Broadly this is your gross earnings minus any pension contributions and other deductions such as Gift Aid. Your P60 should include a line for your taxable earnings, and if you have no other income this is your best guide to whether you have a taxable income over £50,000 and are affected by the charge.
If your tax affairs are complicated you can get an estimate of whether you are affected by the charge, and how much it will be, using the government’s Child Benefit charge calculator.
If you are in any doubt about whether your taxable income is over £50,000 then the safest thing to do is to register for self-assessment . The process for registering for self-assessment is very simple – you need to answer half a dozen basic questions about your name, address and National Insurance number. Under reasons for registering you need to select “My income is over £50,000 and my partner or I will keep getting Child Benefit payments on or after 7 January 2013. Please tick the checkbox and enter the appropriate date below if this statement applies to you”.
IMPORTANT: If you do not know whether your income is over £50,000 still tick this box when registering. If your income turns out to be over £50,000 for the whole tax year then you will have a Child Benefit charge to pay and you will need to fill out the self-assessment form (which is a much longer process than registering). If your income turns out to be under £50,000 then you will not have a Child Benefit charge to pay and will not need to fill out the self-assessment form (unless you need to for other reasons). Ticking the box is about registering – it is not a measure of your income.
My taxable income is between £50,000 and £60,000
People who have an income between £50,000 and £60,000 are better off claiming Child Benefit and paying the charge than not claiming benefit at all. You can choose not to claim Child Benefit, but you will lose out financially if you do. The policy intention is that people with an income between £50,000 and £60,000 claim Child Benefit but then pay a ‘fair’ charge.
If you are in this situation then the first thing to do is to register for self-assessment, if you are not already registered. You must do this using the register for self-assessment form.
My taxable income is over £60,000
Anyone with an income over £60,000 faces a charge equal to 100% of their Child Benefit. It is up to you to decide whether to continue to receive Child Benefit or not under these circumstances.
If you think it is the right decision for you, you can choose not to receive your Child Benefit payments and to not pay the new charge. You should continue to complete claims for any new children even though you will not receive any Child Benefit payments for them because for each week that you are entitled to Child Benefit (even if you don't receive a payment) you could qualify for National Insurance credits which can help to protect your future entitlement to State Pension.
Further help and information
HMRC has a lot of information on their website. Links for most of the main topics can be found on HMRC’s main page for information on Child Benefit charge.
You can get an estimate of whether you need to pay the charge, and how much it will be, using the government’s Child Benefit charge calculator.
For detailed help and information please see HMRC’s frequently asked questions page.