In January next year there are significant changes to Child Benefit coming into force.
Child Benefit is available to anyone caring for a child under the age of 16. Only one person can claim Child Benefit so, for example, a divorced couple cannot both claim if a child splits their time between both parents. Currently Child Benefit is available to all parents and carers, and claimants receive £20.30 per week tax free (plus an extra £13.40 per week for any additional children).
The new rules mean that anyone earning over £60,000 per annum will lose their Child Benefit payments, and those earning over £50,000 will see their Benefit payments decrease as their income approaches the £60,000 cutoff.
It’s a strange anachronism that many people still do not know how much their partner earns. There is a danger that if one partner is the main breadwinner the other may continue to claim Child Benefit well into 2013, blissfully unaware that they are no longer eligible to do so.
Worse, HMRC will investigate, and it is the partner earning over the limit that will be liable to repay the tax and take the punishment!
Now is a great time to do some tax planning
Now is the time for couples claiming Child Benefit to be open with one another about their finances (if they are not already – it’s 2012 after all!), so they can plan for the change accordingly.
The new rules only take into account an individual’s income, not the aggregate income of the couple.
This means that if one member of a household is earning above the limit, they could consider bringing their spouse into their business. This would enable the total income to be split, keeping each individual’s earnings below £50,000 per year, and maintaining their Child Benefit.
If your earnings are above £50,000 per year, it is not too late to take action. Your account manager and accountant can advise you further on how to set your company up in such a way that you keep as much Child Benefit as possible.
You can read more about the upcoming changes to Child Benefit on HMRC’s website.
Photo by Christopher Sessons