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HIGH INCOME CHILD
BENEFIT CHARGE
NOVEMBER 2012
A new tax charge is proposed to claw back Child Benefit from those
individuals with income over £50,000. If you or your partner earn more
than £50,000 the proposals could cost you money.
What is Child Benefit?
It is irrelevant who actually receives the benefit.
Child Benefit is a payment that you can claim for your
child from the Government. It is usually paid every four
weeks but can sometimes be paid weekly. There are
separate rates payable for each child.
It will therefore be necessary to determine:
How much is payable?
For the tax year 2012/13, Child Benefit is £20.30 for the
first child and £13.40 each for others. This works out at
£1,055 for one child, £1,752 for two children, £2,449 for
three children etc.
What is proposed?
•
Whether Child Benefit could have been claimed by
the person or their partner
•
Whether a person has a partner throughout each
week and
•
If so, who has the higher adjusted net income and
whether that income exceeds £50,000.
Where a person has more than one partner in a tax year,
the charge could be split between several people as it is
looked at on a week by week basis.
From 7 January 2013, a new income tax charge will arise
to reduce or remove the financial benefit of receiving
Child Benefit.
What is adjusted net income?
This will affect a person who is eligible to claim the
benefit (unless they have elected not to receive it) if
they, or their partner, has adjusted net income in excess
of £50,000 in the tax year.
•
The individual’s net income for the year (i.e. net of
tax allowable expenses) less
•
Trading losses
•
Gift aid payments
•
Gross pension contributions paid by the individual
and
•
Certain contributions to trade unions and police
organisations.
Does the change mean that some people can no
longer claim Child Benefit?
No. An individual may, however, wish to elect not to
receive it in order to avoid the complexities of coming
within the new charge and potentially within the Self
Assessment system.
Who will suffer the charge?
A person will be liable to the charge if their adjusted net
income is more than £50,000 and either:
a) He/she is entitled to receive Child Benefit and they
do not have a partner with a higher net income for
the tax year or
b) Their partner is entitled to receive Child Benefit and
they have a higher adjusted net income than their
partner for the tax year.
Adjusted net income is:
What is a partner?
For the purpose of this change HMRC says a partner
belongs to one of the following:
•
A married couple living together
•
An unmarried couple living together as husband and
wife
•
Civil partners living together or
•
Same sex couples living together as if they were civil
partners.
How will the charge be calculated?
What planning is available to mitigate the charge?
If you have adjusted net income above £60,000, the
amount of the charge will equal the amount of Child
Benefit received.
The following planning techniques may help reduce the
charge:
If your adjusted net income is above £50,000 but below
£60,000, there is a taper effect under which 1% of
benefit is claimed back for each £100 of adjusted net
income over £50,000.
What marginal rate of income tax does that
represent?
For adjusted net income between £50,000 and £60,000,
the marginal rate of income tax will be as follows:
No. of
children
Child
Benefit
Marginal rate of
income tax
1
£1,055
50.55%
2
£1,752
57.52%
3
£2,449
64.49%
4
£3,146
71.46%
Special rules
Special rules apply where a person can claim Child
Benefit even though the child is not living with them and
where a person has more than one partner throughout
one week (e.g. polygamous marriages not legally
recognised in the UK).
How will the tax be collected?
The tax will be collected through the Self Assessment
and PAYE system. This will potentially bring many more
people into the self assessment regime.
How do I stop receiving Child Benefit?
You can stop your Child Benefit payments by:

Split income between partners – through transferring
ownership of income bearing assets or carrying on
unincorporated businesses in partnership
•
Invest through ISAs or in assets that produce capital
gains not income
•
Make pension contributions – ideally employer
contributions to save NIC through an effective salary
sacrifice arrangement
•
Sacrifice salary in favour of tax efficient benefits such
as child care vouchers, workplace nursery schemes,
bikes to work or mobile phones
•
Timing of bonus payments – but care is needed to
ensure that this is done properly to defer tax
payment dates
•
Incorporate sole traders/partnerships to allow control
of timing of income.
Our people
The Belfast team is closely integrated with the wider
BDO UK and global network to provide solutions in 135
countries.
For further information or advice on this or any other
tax matter, please speak to your usual BDO adviser, or
contact:
PETER BURNSIDE
Head of Tax
+44(0) 28 9043 9009 (DDI)
+44(0) 28 9043 9010 (Fax)
+44(0) 7802 520455 (Mobile)
[email protected]
Using an online form at
hmrc.gov.uk/stopchbpayments or

•
Calling the Child Benefit Helpline on 0845 302 1444.
Are there other implications of ceasing to claim
Child Benefit?
Even if you elect not to receive benefit you should
continue to complete claims for any newborns even
though you will not receive any Child Benefit payments
for them. This is because for each week that you are
entitled to Child Benefit you could qualify for National
Insurance credits which can help to protect your future
entitlement to State Pension. You can get credits if you
are entitled to Child Benefit for children under the age
of 12. This continues until your youngest child is 12.
AILEEN PATERSON
Director
+44(0) 28 9043 7227 (DDI)
+44(0) 28 9043 9010 (Fax)
+44(0) 7786 514025 (Mobile)
[email protected]
HELEN ALLEN
Senior Tax Manager
+44 (0) 28 9067 7326 (DDI)
+44 (0) 28 9043 9010 (Fax)
+44 (0) 7891 240 135 (Mobile)
[email protected]
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