Child benefit changes take effect

Craig Laird, who earns over £50,000, says his family will struggle

More than a million better-off families will lose some or all of their child benefit, under rules now in force.

Families with one parent with a taxable income of more than £50,000 will lose some of the benefit, and it will be withdrawn entirely if one parent earns above £60,000.

The government hopes to save £1.5bn a year to help reduce the deficit.

David Cameron described the move as "fundamentally fair" but Labour said it was a "huge assault" on families.

Defending the policy, the prime minister said: "I'm not saying those people are rich, but I think it is right that they make a contribution.

"If we don't raise that... from that group of people - the better off 15% in the country - we would have to find someone else to take it from."

Shadow chancellor Ed Balls said the government should tax the richest, rather than make changes that affect those on middle incomes, and described the changes as a "complete shambles".

The change comes the day before a key Commons debate over the welfare system, when MPs discuss plans to break the link between benefit rises and inflation.

Chancellor George Osborne has proposed a cap of 1% - which is below the expected rise in the cost of living - on increases in most working-age benefits, such as Jobseeker's Allowance and maternity pay, and tax credits for three years from 2013-14.

Child benefit, housing benefit and universal credit will be capped for two years from 2014-15.

All these changes will affect millions of people.

Facing tax forms

More than 250,000 high earners have already opted out of receiving child benefit but several hundred thousand others who missed a deadline to declare they will no longer qualify will now have to fill in self-assessment tax forms.

Start Quote

My tax affairs are very simple so the one thing I don't really want to do is the self-assessment thing”

End Quote Paul Child benefit claimant

Campaigners say this has created complexity in the system.

They have also pointed to the fact that a family where two parents work and both earn £49,000 a year will keep their benefits, while a family with a single earner on £51,000 - where the other parent may have chosen to stay at home in a caring role - will lose part of theirs.

Child benefit is paid at the rate of £20.30 a week for the first child, and then £13.40 a week for each child after that.

It lasts until each child reaches 16, or 18 if they are still in full-time education, and in some cases until they are 20.

More than a million people are set to be affected by the cut, with the Institute of Fiscal Studies estimating that they would lose an average of £1,300 a year.

Baby being fed Child benefit amounts to £20.30 a week for an eldest or only child

Any child benefit paid to high-earners who have failed to opt out will be clawed back through the High Income Child Benefit Charge, administered by HM Revenue and Customs.

If somebody earning more than £50,000 or their partner keeps claiming child benefit, then the higher earner will have to admit this in a self-assessment tax form. The IFS estimates that 500,000 extra people might have to fill in these forms as a result of the change.

They will need to register for self-assessment, if they have not already, by 5 October or face a fine.

A Treasury spokesman said: "Withdrawing child benefit on the basis of the combined family income would require intrusive means-testing of all eight million households getting child benefit. The way we are doing it is simpler for the vast majority of families."

But the stance has not been welcomed by many people who would be affected.

Paul, from West Sussex, who has a six-year-old son was one of a number of people who reportedly failed to receive a letter from HMRC explaining the options for higher earners on what to do.

He told the BBC: "My salary goes up and down, but we will continue to claim it. But my tax affairs are very simple so the one thing I don't really want to do is the self-assessment thing."

The deadline has now expired for higher earners to opt out of receiving child benefit. They will still be able to do so, but may still face a tax charge for the time still in the system since 7 January.

The latest official figures from HM Revenue and Customs show that 191,873 people have opted out of receiving child benefit - mostly because they know they will consistently earn more than £60,000 a year, or earn over £50,000 and do not want to be pulled into the self-assessment system.

That figure was expected to rise above 250,000 over the weekend. These figures will be confirmed later.

Child benefit cuts: Examples

Earners Annual child benefit after tax charge Details
One wage earner, two children

One income of £49,000

£1,752

With one earner on an income of less than £50,000, this family keeps the full child benefit, which for two children is £1,752 a year.

One wage earner over £50,000, two children

One income of £54,000

£1,052

Can keep some benefit but must repay 1% per £100 earned over £50,000. This is collected via a tax charge and in this example amounts to £700.

family 3

Two incomes: £35,000 + £20,000

£1,752

Although the couple's joint income is over £50,000 they keep all their child benefit as neither one earns over the threshold.

family 4

Two incomes: £20,000 + £61,000

£0

Because one partner earns over £60,000 they can either stop claiming or repay the full £1,752 through the tax charge.

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