Families advised of ways to work around child benefit changes
A local accountant is advising families affected by the government’s child benefit reform that there are a number of tax-efficient ways to ensure they continue to receive what they are entitled to.
From this month, families with at least one higher-rate taxpayer earning £50,000 a year will have to pay back child benefit through the income tax system, while individuals earning over £60,000 will have the benefit withdrawn completely, following a controversial shake-up that ministers claim will save £1.5 billion a year. The proposals are expected to impact on more than a million families nationwide, and while 250,000 high-earners have already chosen to opt out of receiving the benefit altogether, hundreds of thousands more top-rate taxpayers will now have to fill in self-assessment tax forms and repay the benefit at a rate of 1% for every £100 they earn over the £50,000 threshold.
However, Fiona Green, Taxation Director at Shrewsbury-based DJH Accountants, is reminding local residents affected by the changes that it may be possible for them to reduce their taxable income below the top-rate threshold so they are still entitled to keep their tax-free child benefit payments.
“The most obvious solution is for an individual to increase – or start making – contributions to a pension, either an occupational scheme with their employer, or an independent personal pension pot. This can be done by the person increasing the amount of salary they pay in, or by salary sacrifice, where their employer will make a larger contribution in return. And of course, when you take into account the tax relief available on personal pensions, this can be a very tax-efficient solution.
“Individuals could also opt-in to salary sacrifice schemes where taxable earnings are replaced with non-taxable benefits, such as childcare vouchers, which again gives them the scope to lower earnings below the top-rate threshold. It should be noted, however, that items such as company cars aren’t deemed as tax-free and will be treated as a taxable benefit-in-kind.”
Other options available include transferring assets, such as savings and investments, to a spouse or partner to reduce taxable income, and using the child benefit as a ‘loan’ to earn interest in an ISA or savings account before having to pay it back.
“People who are self-employed, or who work as a consultant or freelancer, could also consider registering as a company. That way, they will be able to pay themselves a lower salary, then declare and take a dividend to top up their income, whilst still keeping their total earnings below the £50,000 threshold. Unfortunately, this option isn’t open to individuals who are full-time employees.” Fiona concluded.
