Tag Archives: child benefit

Child benefit – to claim or not to claim?

HM Revenue and Customs are currently sending out letters to all high income claimants of child benefit advising them of changes which come into effect from 7 January 2013. As already discussed in an earlier blog, those affected will be couples where the higher earner has income in excess of £50,000 per year.

If you fall into this category then your entitlement to some or all of the benefit will be removed and you will be given the choice of either not claiming the benefit at all or claiming the benefit and then paying back any overpaid amount through your self-assessment tax return.

It is clear from recent press coverage that this subject has caused a lot emotional response. Views expressed range from those who think it morally wrong that wealthy individuals should be receiving any benefits to those who see child benefit as a just recognition of the contribution to society of bringing up children?

Whatever your view, the practical question is whether to forgo the benefit completely or to claim and pay back any overpayment?

If you know your income is going to exceed £60,000 there seems little point in claiming only to have to pay back the whole lot later. If you are in the middle ground with income between £50,000 and £60,000 you will remain entitled to some benefit, or your income may be not ascertainable until after the end of the tax year. Unlike income tax which can generally be sorted out after the year end, claims for benefits general can only be backdated three months. Waiting until after the end of the year will therefore be too late.

Leaving aside the moral arguments it would seem sensible to claim if you know your income will be less than £60,000 or are uncertain but think it may be. There may be circumstances where claiming is not the best approach. If for example you do not already submit a self-assessment tax return you will be required to complete one to declare any amount overclaimed and if you need the help of a tax agent then costs are likely to significantly eat into any benefit entitlement. Or, if you are the sort of person who spends the money you have then it may be difficult to find the funds to pay back any overpaid amount at later date.

One thing I can be certain of and that is as a recipient of child benefit myself, I have got used to the cheque landing in my bank account every month and I am not looking forward to losing it!

As always, if you have any queries regarding the above matter or are uncertain how it will affect you then please contact your usual client partner or a member of our tax team.

Are You Losing Child Benefit?

The squeezed middle

Leave a reply

Many of the commentators on this week’s budget have used the term “the squeezed middle”. In recent years it has become a rallying call of the middle classes and intended to suggest that they are bearing the worst of the budget rises. I believe that there are many squeezed middles, and some of them are not even in the middle.

At the bottom end of the income scale the nation has many families whose financial security is reliant on tax credits and similar payments. With wholesale reform of welfare benefits, some of the families will have their incomes reduced and therefore may feel squeezed. Families are not the only groupings who will be feeling the pinch. Pensioners have received the news that their age related personal allowances will be frozen and eventually phased out. This is a tax cost to the elderly and therefore they are also being squeezed.

Personal allowances are due to rise, which is commendable. Unfortunately, the rate at which the 40% tax band starts is due to fall from £35,000 down to £34,370. Not only does this increase the tax liabilities of many hundreds of thousand middle earners, it also increases their tax administration burdens; a double whammy of increased taxes and increased administration. Is the correct term a “double squeeze” or a” tight squeeze”?

The middle are most effected by the taxation of child benefit for incomes over £50,000. Although this increase in tax is tapered to prevent a cliff edge effect, it does represent a considerable cost to the family whose income level is starting to be sufficiently high that they may pay for private education or private medical insurance. Those families may revert back to reliance on the state system. Could this taxation increase the budgetary requirements of the NHS and Department of Education?

In my mind the most heavily squeezed are those earning between £100k and £116k. Their marginal rate of tax is in excess of 60%. That hurts them, and it should be priority of the government to eliminate this distortion.

Those earning more than £150k will be feeling the opposite of squeezed. Their tax burdens are falling, unless of course they are thinking of buying a property for more than £2million in a company.

If a wealth tax is imposed in a future budget the highly remunerated may suffer. The inequality of a wealth tax is that it is not necessarily backed by money with which to pay the tax bill.