The Government is reducing costs by decreasing or eliminating the Child Benefit allowance for ‘high earning’ parents. High earning translates to households where at least one person earns in excess of £50,000. On the whole this process has caused a lot of confusion.
The changes in Child Benefit entitlements, the introduction of self-assessment forms and the rigmarole surrounding allowance eligibility has baffled many parents in recent weeks. So, where do you stand regarding the recent Child Benefit cuts?
As a principal dentist or practice owner you may have been included in the estimated one million families in the UK affected by the latest changes to Child Benefit. From the 7th January 2013, Child Benefit changed from being a benefit accredited to all families regardless of income to a means tested allowance.
Approximately one million people have received letters from The HM Revenue & Customs (HMRC) posing the question "Are you affected by changes to Child Benefit?” HMRC has targeted people with taxable income in excess of £50,000 and who collected Child Benefit.
If you received a letter, and are affected by the benefit cut, by now you will have either ‘opted out’ or decided to continue to collect Child Benefit. If you are still receiving Child Benefit, and your income is in excess of £50,000 per annum, you will be required to pay it back in part, or in full, at the end of the tax year through the recently introduced High Income Child Benefit Charge tax.
If you did not receive a letter, but fall into the bracket of a ‘high earning’ parent, fret not! Due to changing addresses, incomes and relationship statuses the HMRC cannot guarantee to contact all those affected by the change. Once you establish that this adjustment in Child Benefit does in fact include you, avoid incurring a penalty by registering for Self Assessment no later than the 5th October 2013.
Many people will face filling out tax assessment forms for the first time and this, combined with the overall negative feeling surrounding the policy, is causing dissatisfaction. Is there anything you can do to soften the blow? As a working professional you can avoid paying the extra tax and still receive Child Benefit, if you can reduce your earnings to register below the £50,000 cut-off mark.
As a higher rate taxpayer there are various methods you can employ to decrease your taxable income.
These include investing in a pension, making charitable contributions, changing your working patterns and purchasing childcare vouchers. The new Child Benefit regulations allow both you and your partner to earn up to £50,000 each and still remain eligible for the allowance.
Changing your working hours, with one of you increasing or decreasing hours to balance your wages evenly may be a solution. Childcare vouchers reduce your taxable income and can be an important source of support for working parents. You can use childcare vouchers, in conjunction with other salary sacrifice schemes, to reduce your taxable income.
To minimise uncertainty, ensure you are informed regarding your Child Benefit status, aware of your entitlements, and employing the various methods to reduce your taxable income. Information and preparation can help you manage the cuts.
For more information please visit www.lansdellrose.co.uk or call Lansdell & Rose on 020 7376 9333.