The government introduced new rules last January where either parent earning over £50,000 in a household will lose one percent of their child benefit for every £100 of income over £50,000. For those people earning £60,000, this will equate to your household being entitled to no child benefit at all.
In households, where both parents are earning over £50,000, then the parent with the highest income is liable to paying back any child benefit they have received that they are now no longer entitled to. This means that they will now have to complete a self assessment form.
At the time the new rules were introduced it was your choice as a parent to either completely lose child benefit, or accept the payment, and then at the end of the tax year complete a self assessment tax form and repay the money that you are not entitled to.
There is a way of reducing your income so that effectively you do not end up paying the tax. You could do this by making a payment to a pension scheme. The benefit of doing this is that you pension will grow, whilst at the same time making sure you do not pay as much in tax.
An example is as follows:
If you have two children then you will get £33.70 weekly, which equates to £1752.40 per annum. This means that if you earn £60, 000 per annum, then you will lose £1752.40. If you could afford to make a pension payment of £10,000 gross, then this will cost you £10,000 less tax relief of £4000 and £1752.40 = £4247.60 This means that your £4247.60 is now equal to £10,000. If you do not make any pension provision, and keep your finances as they are, then your tax rate will effectively be 57.53% for all your income between £50,000 to £60,000.
Not only are you affected by an extra layer of tax, but worse by not filling in your self assessment form by January 31, 2014, you will be liable to a £100 fine. This will be followed by £10 a day up to a maximum of £900 over a period of three months, and then after six months a further 5% of the tax due.
Whether you feel the tax is fair or not the fact is you need to take action. I would suggest talking to a financial adviser/accountant and looking at your own personal situation. Let us know your thoughts on either twitter or email me directly.