Read our recent Q + A for Your Move Magazine ‘Planning for Child Benefit Changes’

Q: I am self employed, with profits of about £60,000 a year, and three young children, so we currently receive child benefit of almost £50 a week.  My wife does not work. What will be the impact of the new Child Benefit Rules on us?

A: The Institute for Fiscal Studies has estimated recently that 1.2 million families will be affected by the changes to Child Benefit which come into effect on January 7th.

Families such as yours could end up missing out on nearly £2,500 a year.  The new rules mean that from January 2013 households receiving child benefit where one parent or partner earns more than £50,000 will be hit with a new income tax charge.

This “penalty” charge which is payable via a self assessment tax return is applied to all taxable income (i.e. not just salary or profits but also investment income or rental profits).  Child Benefit is clawed back gradually where one parent or partner earns more than £50,000 and withdrawn entirely from those families where someone earns more than £60,000 a year.People in your situation will be encouraged by HMRC to give up receiving the benefit to save you the trouble of subsequently paying it back!

Q: That seems really unfair.  Is there anything I can do about it?

A:  The proposed changes are fraught with difficulties and will catch many families unaware.The way that the rules stand at present means that for situations like yours there may be a number of ways of preserving the benefit, at least partially.

For a business such as yours, a Limited Company will automatically reduce your personal taxable income and also allows you to time your dividends such that you have a much greater level of control over your personal income.

Involving your wife in the business may also be an option, assuming she could assist you in some way, as paying her a small salary out of your profits would reduce your taxable income.  Similarly ensuring that any investment income is in your wife’s name may also help.

Finally Pension Contributions become even more attractive as not only do they save income tax and national insurance they also reduce your taxable income upon which the Child Benefit charge is based.

My advice is to speak to a suitably qualified accountant as soon as possible!