There has been something of a media storm this week about the removal, or reduction, of Child Benefit for those families where one parent earns more than £50k per year.

For the families impacted by this change, particularly the grouping now generically tagged the ‘squeezed middle’, this reduction in benefit will most certainly be felt.

It therefore follows that many organisations will find that some employees are now more exposed to the impact of the economic downturn than this time last week. Which in turn is not good for well-being or engagement.

But there is a way that many employers can actually help employees avoid this reduction in Child Benefit, without the organisation spending a penny more on the remuneration structure than they currently do.

Any employee pension contribution can be deducted from the employee’s gross salary figure, and could therefore make the actual ‘adjusted net income’ (on which the Child Benefit tax position will be based) a lower figure. That could reduce, or remove, the entire impact of the charge for some employees.

To avoid or mitigate a tax charge, employees will have to enter the Self-Assessment tax regime, with the grossed-up value of pension contributions being deducted from the original gross total. The actual tax treatment of pension contributions does vary between Trust and Contract based pension schemes, and Salary Sacrifice further confuses the picture. So if you are unsure which of the above applies to your arrangement, it’s probably best to check with your usual Jelf consultant to clarify the issue.

But whichever route you use, it’s possible that this may help some of your employees mitigate what will be a significant hit to their personal income.

Aside from pensions, other benefits (Childcare Vouchers not least) also utilise the Salary Sacrifice mechanism as well. So these too could result in an improvement in the Child Benefit tax position. So even an employee earning significantly more than £60k, may find that the combined impact of pension and other benefits reduces the salary to a level where Child Benefit may continue without a tax charge.

It’s also worth pointing out that for some employees it could be beneficial to increase contributions to one of these benefits, as this could result in a better tax position re Child Benefit.

So I would urge employers to a least look into this issue, to see if your employees can be assisted on this important point. Which in turn can only be good for the employer/ee relationship, and just goes to show how employee benefits can sometimes be used more strategically by employers.

Best regards

Steve