Employers can help their staff avoid thousands in tax charges from the new High Income Child Benefit Charge through salary sacrifice schemes, says Susan Ball, director of the Employer Advisory Group at national audit, tax and advisory firm Crowe Clark Whitehill.
The new charge comes into force on 7 January 2013 as part of the Government’s austerity measures. It introduces means testing for family allowance recipients, and will claw back child benefit from individuals and families earning £50,000 or more through the new tax charge.
In assessing means for the purposes of the charge, HMRC looks at the highest earning person in the family unit, rather than the person actually receiving the child benefit. This widens the impact of the new charge, affecting over 1.2 million families. Approximately 70% of these households will lose all of their child benefit.
But employers can help ease the burden for employees on or just above the £50,000 earnings threshold through salary sacrifice schemes. These could potentially save employees earning between £50,000 and £60,000 thousands in High Income Child Benefit tax charges.
Susan Ball says:
“For employees who earn just over the £50,000 threshold, it may be worth looking at a scheme that could help manage the new charge. Employees on the £50,000 threshold could potentially avoid the charge by making a higher pension contribution, buying extra holiday or entering into one of the salary sacrifice schemes their employer offers, such as childcare vouchers, or cycle to work.”
“These measures could save the employee from being caught in the child benefit clawback, and potentially also save income tax and national insurance.”
With rising costs seeing many families tightening budgets, the impact of the tax charge will be felt by those on the earnings threshold, particularly single-earner families.
Susan Ball says:
“It’s good practice for employers to highlight to employees what is happening, and better still, remind them of the schemes on offer that could help them reduce their income below £50,000 to allow them to keep child benefit. It must be remembered that for many families, losing the benefit will result in the loss of thousands of pounds of valuable income.”