From 7th January 2013, child benefit is being reduced in households where there one person earns over £50,000. Those earning between £42,475 and £60,000 will be able to keep some or all of their child benefit depending on their earning levels. If the higher earner in the family earns up to £50k, then no child benefit will be lost. If the higher earner in the family earns between £50k and £60k there will be a tapered removal of child benefit, which will be a reduction of 1% of child benefit for every extra £100 earned over £50k. Once the higher earner reaches £60k, all child benefit will be lost.
One of my big worries is that many families will think that they are not eligible for child benefit any longer and will no longer claim for it, however this could seriously jeopardise the non-working parents chances of pension entitlement later. If you are not eligible for child benefit, you should claim it anyway but decline to receive it, which means you keep your entitlement to state pension benefits. Another of my big worries, is that many families will think that they are not eligible any longer because they fail to calculate their net income correctly. It is really important to remember that you deduct any pension contributions that you make, gross of income tax. For more information on how to calculate your earnings click here : http://www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/employment-income.htm
Still unsure whether you will lose your child benefit? Read on for my Top Tips to reduce this risk:
- If the higher rate earning parent is employed, consider opting to collect childcare vouchers as part of a salary sacrifice scheme or paying more into your pension. In effect, the worker takes a pay cut, in exchange for other benefits.
- If salary sacrifice is not available, it might be worth asking for a pay cut, if the higher rate earning parent is just on the borderline of the £50k threshold. If you ask for a pay cut which brings you back under £50k gross, you will regain your entitlement. However, you must weigh this up against the net pay you will be losing.
- If you are a sole trader or partner in a partnership, just into the £50k earnings bracket, it could be worth considering incorporating your business. By doing this, you could have the option of reinvesting profits in your company rather than having them all treated as drawings. This would reduce the amount of taxable earnings you receive. Incorporation should not be undertaken lightly however, as it does bring additional responsibilities, and reduces flexibility. Ask your accountant to assess whether it is right for you.
- If you are a director of a limited company already, again you could have the option of reducing the amount of money you take out of the company to ensure your gross total income is under £50k per annum.
- If you are a director of a limited company, you could also have the option of starting your own salary sacrifice scheme which you, and your employees, would benefit from. This would have the effect of the worker taking a pay cut, in exchange for other benefits.
The benefit is worth £20.30 a week for the first child and £13.40 for any additional children, so it is well worth hanging on to wherever possible.
If you would like any help with any aspects of your accounts or taxation contact me now on 01767 260282 or email@example.com, www.tayloraccountancy.net. Come and like me on facebook to get more tax tips, special offers and discounts www.facebook.com/amytayloraccountancy.
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