From today more than one million families will receive letters informing them they may lose their child benefit payments.
In a bid to ensure the better-off help deficit reduction, families where at least one person earns more than £50,000 will see the benefit either stopped or reduced.
But how will the change be enforced, and will you be affected? Find out with our Q&A guide:
Child benefit is a tax-free payment you receive for each child you’re responsible for under the age of 16 - or under 20 if they stay in approved education or training.
As it stands, all families can claim. They receive £20.30 a week for their eldest or only child, and £13.40 for each child thereafter. Child Benefit is paid into a parent’s bank account every four weeks.
But from today, many families will receive letters from HMRC warning them about forthcoming changes to child benefit.
The letters explain the new High Income Child Benefit Charge. This will apply when a taxpayer’s or their partner’s income is more than £50,000 in a tax year, and if they or their partner receives Child Benefit.
In short, any household where one person earns more than £60,000 will lose all entitlement to child benefit. Those earning between £50,000 and £60,000 will lose some of it.
However, the change will produce anomalies: two-earner households where both parents earn £49,000 will keep all their benefit, while others who have one parent on £60,000 and the other staying at home will lose all of theirs.
How much do affected families stand to lose?
According to the New Statesman, families will lose £1,055.60 a year for a first child and a further £696.80 a year for each additional child. This means a family with three children stands to lose £2,449.20 - the equivalent of a £3,500 pay cut (since child benefit is untaxed).
How many people will be affected by the change?
Around one million people, it is reported. Officials say as many as 500,000 parents may have to complete self-assessment tax forms, and helplines are expected to be inundated with calls for advice, BBC News reports.
When will the change come into force?
The High Income Child Benefit charge will be introduced from January 7, 2013.
I fall into the affected category. What happens next?
The High Income Child Benefit charge is worked out on your income, after certain adjustments are made, and the amount of Child Benefit you or your partner are entitled to receive.
The amount of the tax charge will depend on:
- the amount of Child Benefit entitlement
- the level of your 'adjusted net income'
The amount of the tax charge will differ according to whether your income is between £50,000 and £60,000; or £60,000 or more. For those with income of more than £60,000, the tax charge is 100 per cent of the amount of Child Benefit.
If income is between £50,000 and £60,000, the charge is gradually increased to 100 per cent of the Child Benefit.
Find out more about how it’s calculated here
If you’re affected you’ll need to choose to either:
- Keep receiving Child Benefit payments - but if you do you’ll need to declare the amount you or your partner are entitled to by filling in a tax return each year and registering for Self-Assessment if you haven't done so already
- Tell the Child Benefit Office you want to stop receiving Child Benefit payments - in which case you won't be liable for the new tax charge and won't need to fill in a tax return (unless you need to for other reasons)
Find out more about what to do next.
Why is this change being brought in?
In the autumn of 2010 Chancellor George Osborne said he could no longer defend giving out £1 billion a year to better-off families.
The move is designed to ensure the better-off help deficit reduction.
A Treasury spokesman said: "In a period when the Government is having to reduce welfare spending, it is very difficult to justify continuing to pay for the child benefit of the wealthiest 15 per cent of families in society.
"The unprecedented scale of the deficit has meant that the Government has had to make tough choices to reduce public spending; but we have always been clear that those with the broadest shoulders should carry the greatest burden.
"Eighty-five per cent of all families with children are unaffected and will continue to receive child benefit in full, 90% will benefit in full or in part.”
What if my circumstances change?
HMRC has announced parents who opt of out receiving child benefit in order to avoid a tax bill will be able to claim the benefit if their income subsequently falls, the Telegraph reports.
Patrick Stevens, president of the Chartered Institute of Taxation, told the Telegraph amendments to the legislation by provided a "safety" net for those households that expect the higher income partner's income to exceed £60,000, ask not to receive child benefit, but unexpectedly have income of between £50,000 and £60,000, so the tax would be less than the child benefit.
How is the change being received?
Many have pointed out the change will produce anomalies, whereby two-earner households where both parents earn £49,000 will keep all their benefit, while others who have one parent on £60,000 and the other staying at home will lose all of theirs.
And in May this year the Institute of Chartered Accountants in England and Wales warned that unless the Government found a more workable alternative, the tax plan could be an “operational and reputational disaster”.
In a confidential report seen by the Telegraph it claimed the plan was doomed because it involved combining the benefits system, which is based on households, and the tax system, which is based on individuals.
This meant “using the tax system to claw back from one individual a benefit paid to another”, it said.
However, according to a poll commissioned by the Conservative Party 82 per cent of voters back the policy.