Umbrella Company Employees in households where anyone earns more than £50,000 a year could find themselves facing additional taxes if they have not opted out of the Child Benefit system, which changes significantly from 7th January 2013.

Chancellor George Osborne initially intended all families with a higher rate taxpayer to be automatically excluded from claiming child benefit, but backed down after a storm of protest. Now, everyone earning £60,000 a year will be automatically excluded, while those earning between £50,000 and £60,000 may only claim a lower rate.

The transition to the new system, however, has been something of a shambles: many busy contractors working industriously away through Umbrella Services may find that they have been hit by the changes without any forewarning. Only 784,000 of the 1.1 million affected households have received formal notification from HMRC advising them that they will no longer be eligible for the newly means-tested benefit as before.

Households that have received the letter have been given the option of opting out of the scheme altogether, or remaining in it and paying additional taxes (the so-called ‘high income child benefit charge’) to cover the cost of the benefit. This is where the real headache lies: the 316,000 families who have not been notified will now have to file the complex, eight-page HMRC self-assessment form, and risk getting fines running into hundreds of pounds if they fail to get it in on time.

The legislation has been slammed by the Institute of Chartered Accountants as “seriously flawed in principle and practise”, while tax expert Brian Murphy of the accountancy firm PwC also condemned the change, which he said would “catch people unawares.”

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