The changes to child benefits revealed this week may cause an upheaval in pay and benefits structures across Great Britain. “The withdrawal by the UK government, from 2013, of child benefits from families where one or both parents are higher-rate taxpayers could prompt a flurry of employee benefit strategy reviews”, said Aiden Coloe, partner and head of LCP Employee Benefits Consulting.
“Whilst many employers are planning to review their employee benefit strategies when the forthcoming changes to taxation of pension savings are finalised by the government, the child benefit cut is another prompt to take action, including reviewing benefit strategies for those employees who creep into the higher rate tax bracket through bonuses or promotion.
Salary exchange or flexible benefit arrangements – where pension contributions are paid by employers in exchange for reductions in taxable earnings – will become more important, especially to those employees who receive benefits based on those earnings.
Based on current tax rates, if someone in receipt of child benefit for three children gets a pay rise that takes them just over the higher rate tax band, they would need a further £4,000 increase in their salary just to maintain their take-home pay”.
