From January 2013 a person who earns more than £50,000 must advise HMRC if they receive Child Benefit personally,

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or if they are the higher earner of a couple where their partner receives Child Benefit. If you fall into this category you may be receiving a letter soon from HMRC advising you of the new tax charge.

We have summarised below the details of the tax charge that will apply from 7 January 2013:

1. Child Benefit is not being made liable to tax, the amount claimed is unaffected. The tax charge simply claws back the value of the benefit of those with higher incomes.

2. Child Benefit claimants can elect not to receive benefit if they or their partner do not wish to pay the new tax charge. This election can subsequently be withdrawn if circumstances change.

3. The amount of the tax charge will be collected through Self Assessment and PAYE.

4. The tax charge will be 1% of the amount of the Child Benefit you receive for every £100 of income you earn in excess of £50,000. This sliding scale will apply to earnings up to £60,000.

5. The tax charge will recover all of the Child Benefit you or your partner receives if your income exceeds £60,000.

6. An individual who has an income over £50,000 but does not receive Child Benefit themselves will only be subject to the tax charge for any part of the tax year during which they live with a Child Benefit claimant whose income is below £50,000.

A couple or partnership affected by these new rules comprises:

• a married couple living together;

• civil partners living together;

• a man and a woman who are not married to each other but who are living together; or

• a man living with a man or a woman living with a woman who are living together as if they were civil partners.

What planning could reduce this tax charge?

If the highest earner’s income is marginally over £50,000 the simplest way to reduce or eliminate this new tax charge is to reduce your income for tax purposes. One way that you can do this and retain benefit for your family is to make a lump sum contribution into your pension scheme. You will create higher rate tax relief on the contribution and save all or part of the higher Income Tax charge to recover Child Benefit. Depending on the number of children you claim for, this could create tax savings of over 70%.

Couples affected would be wise to seek professional help to ensure this new tax charge is kept to a minimum, especially for families where the highest income earner’s income only marginally exceeds £50,000.

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In order to qualify for a full year’s Tax Credit claim for 2012-13 your application needs to be made before 6 July 2012. This is because HMRC will not back date an application by more than three months.

Based on your past income levels you may be of the opinion that an application would produce no cash benefit. However, your circumstances may change. For example if you are self-employed you may suffer a downturn in trade that you cannot foresee or you may be able to claim for a significant investment in plant or equipment and reduce your taxable profits accordingly.

Applying in the April-July 2012 window will secure your rights to Tax Credits for 2012-13. Even if the initial assessment reveals that no Tax Credit payments are due to you, should your circumstances change you can ask for the assessment to be re-evaluated.

Please call if you would like assistance in making a claim.

HMRC have apoloised after sending out misleading letters regarding tax credits.

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• Tax officials apologise after misleading families on child tax credits (telegraph.co.uk)

HMRC are in the process of sending out renewal packs to Tax Credits claimants for the tax year 2011-12. If you wish to renew your claims, make sure that you submit the forms before the 31 July 2011 deadline otherwise your payments may stop.

The tax credits helpline number is 0845 300 3900.

Claimants should make sure that any information returned on their claim form is accurate. HMRC may check earnings details with employers.

Information you will need to report includes:

• Working hours
• Childcare costs
• Pay
• Income details 2010-11.

Claimants on “nil awards” and those that only receive the full family element of Child Tax Credit will receive a statement setting out their 2010-11 award. If this statement is correct there is no further action to take, your claim should automatically be renewed.