Child benefit cuts: Millions of letters to be sent 'soon'

parents with child Families with one person earning more than £60,000 will lose all their child benefit

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Millions of parents will be getting a letter within the next month from HM Revenue and Customs spelling out how their child benefit could be cut.

Households where at least one person earns more than £50,000 will have the benefit effectively reduced or stopped.

Tax officials say the changes could mean up to 500,000 parents having to complete self-assessment tax forms.

The cuts are needed to ensure the better off do their bit to reduce the deficit, ministers say.

A spokesman for Her Majesty's Revenue and Customs (HMRC) said the exact details of what would be in the letters was still being worked out.

But parents will be asked to declare if they, or someone else in the household, earns over the £50,000 level.

They can then choose either to stop receiving the benefit, or choose to continue to receive child benefit with the money clawed back via the tax system.

'Options'

The "clawback" option will see the highest earner over £50,000 in a child benefit household paying an "income tax charge" equivalent to some or all of the amount they currently get.

The benefit received will be recouped gradually as the income rises above £50,000, with the child benefit being eroded completely once their income is £60,000 or more.

The change is due to come into force on 7 January, 2013. For someone with two children earning £60,000 a year it is the equivalent of a 4.5% pay cut.

Child benefit 'households'

  • Married couples living together
  • Civil partners living together
  • A man and a woman who are not married to each other but who live together
  • A man living with a man or a woman living with a woman who are living together as if they were civil partners.

An HMRC spokesman said the tax office would not be suggesting whether parents earning over £60,000 should choose to stop claiming the benefit or use the self-assessment system to pay it back.

"HMRC will be contacting customers affected by the changes later in the autumn, when [we] will set out what people need to do and the options they have," he said.

But the Institute of Chartered Accounts said the introduction of an income charge - pushing half a million people into the self assessment tax system for the first time - will cause problems.

"The charge will increase complexity and compliance costs," said Anite Monteith, a chartered accountant.

"We are worried we are going to see the same operational problems arising that we saw for tax credits - especially for those with fluctuating incomes."

Re-think

The institute has issued advice to parents to "speak to your partner about their income" and says parents may be better off taking a pay cut "to avoid the clawback" of the new income tax charge.

An HMRC spokesman confirmed parents will have to determine who earns the most in a household and will have to ask the tax office to find out if they are unable to do so.

Child benefit facts

  • Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children
  • One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children
  • The payments apply to all children aged under 16 and in some cases until they are 20 years old
  • The system is administered by HM Revenue and Customs (HMRC) which pays out to nearly 7.9 million families, with 13.7 million children

Earlier this year the HMRC defended the legality of revealing information about taxpayers to their partners.

Wendy Alcock, campaigns co-ordinator from the website moneysavingexpert, added: "We've not seen changes to the child benefit system since it was introduced in the 1970s, so families affected are going to need to be on their guard."

HMRC say the additional costs of the new system to the taxpayer will be up to £25m a year in computer system and staffing expenses.

Initially the government wanted to scrap child benefit for every family with at least one person paying the higher tax rate - just over £42,000. Announcing the measure in 2010 Chancellor George Osborne said it was "tough but fair" to withdraw the payments.

But he modified the plan earlier this year after pressure from those who said it was unfair that a family earning over £80,000 between them could keep the benefit, while a single parent earning just over half that would lose theirs.

Changes from January 2013

Annual salary Child benefit for parent with two children

£40,000

£1,752

£50,000

£1,752

£55,000

£876

£60,001

£0

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