The government’s child benefit changes that were introduced in January 2013 are not the most straightforward. I’ve written an article that’s a basic guide to the child benefit changes, but I’ve also had lots of questions about what counts towards the £50,000 income threshold and what happens if your partner won’t tell you about his or her finances and who pays the tax charge if a new partner moves in.
Q. When do I have to register for self assessment to avoid a penalty?
A. If you’ve decided to continue to receive your child benefit payment and you and/or your partner earns more than £50,000 a year, the one earning the highest income must register for self-assessment by October 5th 2013, to repay the tax. Although as long as you file your self-assessment tax form and pay all tax due by the following January 31st you shouldn’t incur any tax penalties.
You can find out how to register for self-assessment on the GOV.UK website and information about what counts as income for the £50,000 threshold later in this article.
Q. I don’t know if we’ll need to pay the tax charge because my partner is self employed, but I’m worried about the amount we’ll owe.
A. John Whiting who was SavvyWoman’s tax expert at the time this was originally written, says that the most tax you will owe as a result of the child benefit changes will be the same as child benefit. “It’s not an insignificant amount of money, but if you’re unsure the best option may be to keep receiving the child benefit but keep it to one side in case you have to pay it back.”
SAVVY TIP: The GOV.uk website has a high income tax charge calculator where you can estimate the tax you may have to pay.
If you and your partner earn less than £50,000 (from your job and other income — see below), don’t worry about the changes as they won’t affect you. If you earn more than £60,000, John Whiting says you’re probably better off not receiving child benefit as it will be entirely wiped out by the tax charge. But make sure you still register for it (which isn’t the same as receiving it) to make sure you receive National Insurance credits that will count towards your state pension.
SAVVY TIP: You can claim child benefit but receive no payment and you’ll still get NI credits. Make sure you don’t simply ‘not register’ for child benefit because if you’ve never registered to claim it, you won’t receive National Insurance credits. If you stop child benefit payments and then find your income isn’t as high as you thought – or if your income falls – you can restart child benefit payments.
Q. What counts as ‘income’ for the £50,000 and £60,000 thresholds?
A. That’s a good question. Income isn’t the same as earnings. If, for example, you have a £45,000 salary and rent out a home for £10,000 a year you would probably be over the threshold. Your adjusted net income is:
– Your total taxable income (such as earnings from a salary, self employment, savings/investments and/or rental income from a property and benefits, such as a company car)
– From this you take away any pension contributions (before tax relief) and any charity donations made via Gift Aid. Here you can take away the amount you donated, plus basic rate tax relief. So if you have £1,000 over the year, you’d be able to take £1,250 from your earnings.
Q. Can I reduce my income so I can keep child benefit?
A. Yes, there are several ways you can do this. If you’re employed, the main options are to make extra pension contributions, to make charity donations via Gift Aid, buying childcare vouchers if your employer offers them or taking time off without pay, if your employer allows that.
If you’re self employed, says tax expert John Whiting, you may have more flexibility. “You may be able to manage when the contracts come in — as well as doing things like making pension contributions.”
SAVVY TIP: Making extra pension contributions could be a really good way of not only reducing your income and so keeping child benefit in full but boosting your pension income in retirement. Most of us aren’t saving enough for our retirement, so think seriously about paying extra into your pension if you can afford it.
Q. I live alone and earn just under £50,000. I have two children. What happens if my new partner moves in with me?
A. John Whiting says that HM Revenue and Customs will be taking an unhealthy interest in relationships from January, but it shouldn’t start ‘snooping’. “This is all done through self assessment so you have to tell HMRC if you think you should pay the tax charge or give up child benefit altogether.”
However, John adds, if you earn more than £50,000 and currently receive child benefit and pay the tax charge, and your partner, who earns more than you, moves in partway through the tax year, he (or she) would have to pay the tax charge because it’s the higher earner who has to pay the tax charge. “This means that one partner may have to pay the charge for — say – three months and the other would pay it for the rest of the year.”
Q. My partner won’t tell me how much he earns. What do I do?
A. If you earn more than £50,000 and don’t know how much your partner earns, you can contact HM Revenue and Customs for some information. You’d need to know their National Insurance number as well as their date of birth. HMRC won’t tell you how much he or she earns, but will be able to tell you:
– whether your partner/ex partner was entitled to receive child benefit in the specific tax year
– whether your adjusted net income was higher than your partner/ex partner’s for a specific tax year.
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