Child Benefit
The measure
A new income tax charge will be introduced for those in receipt of Child Benefit and where either the recipient or their partner has an income over £50,000 pa. The charge will rise at a rate of 1% of their Child Benefit award for every £100 of income above £50,000 and will fully cancel out the Child Benefit award for those with income of more than £60,000.
Who will be affected?
Families receiving Child Benefit where one or both partners have income of £50,000 or more. The higher earner in a family will have to bear the income tax charge and it will be assessed based on his or her individual income.
The charge will increase the marginal rate of tax for a higher rate taxpayer with two children and earning between £50,000 and £60,000 to 57.5% (excluding NIC) on income between £50,000 and £60,000. An equivalent taxpayer with four children will have a marginal tax rate of 71.5% on income in that band. The income tax will be collected through self assessment and PAYE.
When?
For the 2012/13 tax year, the charge will be based on any Child Benefit awarded between 7 January and 5 April 2013. From 2013/14, the charge will be based on the full year's award.
It is not clear how the additional income tax charge can be administered effectively, especially where there is uncertainty over the level of Child Benefit to be taxed and over which parent is the higher earner. It can be expected to test HMRC's ability to process information and issue accurate PAYE coding notices. Any requirement for employers to collect information about employees' Child Benefit entitlements would not be welcomed by employers.
