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What is the Child Benefit tax charge and how can I avoid it?


What is this new Child Benefit tax?
The Chancellor has announced that as of 7th January 2013 there will be massive changes to the Child Benefit regime. In simple terms the new rules mean that anyone earning over £50,000 will be subject to a new Child Benefit tax (officially called High Income Child Benefit charge) if they continue to receive Child Benefit. If you earn over £60,000 the tax will normally equal the Child Benefit, mean you may as well not claim the Child Benefit.

This new tax will be collected by ‘forcing’ anyone earning over £50,000 to complete a tax return. If you don’t complete a tax return on time you could be fined well over £1,000. The good news however is this new tax has been badly planned by the Chancellor and that means with some careful planning you and your partner may be able to reduce or avoid this tax altogether.

How can I avoid this tax charge?
Whether you are employed or self employed making pension contributions could reduce or eliminate this tax. For employed people ensuring you are claiming all allowable employment expense could be an effective strategy. For self employed or company directors there is huge scope to restructure your affairs to plan around this tax. For example paying other family members a market rate to carry out tasks in your business or timing your income strategically could mean you get to keep the full Child Benefit.

A word of caution
As with any tax reduction strategies it’s important to make sure you keep the right side of the fence legally and morally. We believe it’s completely moral to plan your affairs to minimise the impact of this new tax. If you’re unconvinced about the morality of that, consider the fact that if you earn £51,000 and your partner earns nothing you will be paying an effective tax rate of up to 72.5% on some of your income. Compare this to a couple earning £40k each who will be paying an effective tax rate of 20%.

How Norton Accountancy can help you?
We are offering a Child Benefit review and tax return service from just £99.

This will include:
A one hour meeting to fully discuss and understand your income and your current position
A personalised report identifying any opportunities to reduce this tax and your key deadlines and requirements.
Free first year tax return completed and submitted to HMRC.

Give us a ring or email us on now to book your review:

Bristol – 0117 910 9858
Cardiff – 02920 567 366
London – 0203 3102 4185
Newport – 01633 547 409