Business

Child benefit opt-outs sees late surge

  • 7 January 2013
  • From the section Business
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Some 270,000 people have opted out of receiving child benefit, owing to changes in 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Families with one parent with a taxable income of more than £50,000 will lose some of the benefit, and it will be withdrawn entirely if one parent earns above £60,000.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 benefit will be recovered through a tax charge unless individuals opted out before Monday.

There was a late surge of around 80,000 during the weekend before the deadline.

Tax charge

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 better-off families will lose some or all of their child benefit, owing to the changes which the government hopes will save £1.5bn a year.

The Institute for Fiscal Studies estimated that these families would lose an average of £1,300 a year.

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.

The latest figures from HM Revenue and Customs (HMRC) show that 270,000 high earners have chosen not to receive child benefit. This is 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.

This number grew sharply from the total of 191,873 announced by HMRC on Friday.

The deadline has now expired for higher earners to opt out of receiving child benefit to guarantee they are not pulled into the self-assessment system. 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.

'Unfair'

Some people have argued that it is unfair to be pushed into the self-assessment system.

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

Campaigners 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.

One person in this type of situation is Chris Demott, of Surrey, who earns £60,000 and whose wife looks after their two sons.

"We now have no child support and yet a hypothetical family next door with slightly less income per head will still have this extra income," the 39-year-old said.

"I'm not saying that I can't afford to lose the benefits but the way this is set up simply isn't fair."

Welfare changes

David Cameron described the changes 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.

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