Child benefit reforms, which come into effect from today, will see reduced benefits for families with one partner earning over £50,000, and no benefits for families in which one partner earns more than £60,000 a year. In a bid to save the Treasury £2bn a year, Chancellor George Osborne announced in the 2012 Budget that high earners would be hit by the child benefit reforms.
Around 1.1 million earn more than £50,000 a year and these families are set to lose some or all benefits which are worth an average of £1,300 per family and will now be hit by high tax demands. But, only 250,000 people had opted out of the child benefit reforms by 5pm yesterday, with just seven hours to go before the deadline for registration. This means that around 850,000 parents will continue to receive child benefits as usual, but will have to pay back through tax on it at a later stage through a cumbersome self-assessment process.
The child benefit reforms, however, do not affect families that simply have a combined income over £50,000. This means that both parents can earn up to £49,000 and still receive full child benefits, even though the total of their household earnings would add up to £98,000.
A crucial point which needs to be understood is that the reduction in child benefit payments will take place if the taxable income is over £50,000 threshold, after deductions such as pension contributions, benefits-in-kind and salary sacrifice. So, if a person’s gross salary is £60,000, s/he will not be affected by the child benefit reforms.
Child benefit payments can still be retained despite the reforms through reduction of taxable income. This can be done through ways such as giving more charity through salary, paying more towards pension contribution, or by buying childcare vouchers or extra holiday.