Hundreds of thousands of parents in the UK have been blindsided by a bill from the taxman after finding out that they are no longer eligible for the full child benefit payment they receive each month. (1)
Child benefit is paid every 4 weeks to one account only, at a rate of £24.00 (for the eldest or only child) or £15.90 (for additional children) each week. It continues until your child reaches the age of 16 or age 20 if they remain in approved education or training.
This used to be a universal payment to all families with children, however, it became a means-tested payment in January 2013 when the ‘High Income Child Benefit Charge’ (HICBC) was introduced. The charge applies to anyone with an income of £50,000 or more and increases gradually for taxpayers with incomes between £50,000 – £60,000. Whilst it was widely publicised in 2013, there has been little communication since.
Here are the traps which have caught people out:
- Many taxpayers may have been aware of it when their child was first born but over time as their income has gradually risen above £50,000 (whilst the threshold has frozen), they have since forgotten.
- HICBC is not necessarily clawed back from the claimant of the child benefit. If you are in a couple, it is the higher earner who is assessed, regardless of whether the higher earner is a parent of the relevant child or has received any child benefit income.
- You do not have to be married or in a civil partnership to fall within the scope of the HICBC; living together as if married or in a civil partnership also falls within the remit. The taxpayer who is ‘caught’ may have no idea that their spouse, partner, or cohabitee is in receipt of child benefit.
- Some are unaware that it is their responsibility to let the Child Benefit Office know if one parent has exceeded this threshold.
- For those who were aware of the sliding scale threshold and as such, decided against registering for Child Benefit, they have run the risk of losing valuable National Insurance credits if the other parent was not working or earning enough to pay National Insurance contributions.
(1) Data released under a Freedom of Information request in May revealed hundreds of thousands of people have not complied with the HICBC.
Click on the links below to open/close the need-to-know information.
The charge affects anyone with an income of £50,000 or more. The income considered is your ‘adjusted net income’ – this is your total taxable income minus certain reliefs such as pension contributions or Gift Aid charity donations. For every £100 of income that is over £50,000 each year, you will be charged an amount equal to 1% of your child benefit payment so by the time your income reaches £60,000, the charge will equal your child benefit payment in full.
For those in any doubt, the charge applies to an individual’s income over the threshold and not combined household income. If, for example, you and your partner earned £49,000 each, no charge would apply and you would receive your child benefit payment in full, whereas if one of you earned £60,000 or more and the other didn’t work, you would lose your entitlement in full and be worse off even though your combined income is lower in the first place.
The onus is on you to report any changes in circumstances. A simple change to your income due to working overtime or receiving a promotion may affect your entitlement. It’s worth checking the gov.uk tax calculator to see if the charge applies to you.
You can choose to:
- opt out of getting any child benefit payments (and not pay the tax charge); or
- receive child benefit and pay any tax charge at the end of each tax year via a Self Assessment tax return.
It is highly recommended that you still complete a child benefit claim form, then opt out of receiving the actual payments. This is especially important for a parent who is not working or not earning enough to pay National Insurance as it means you can still claim National Insurance credits towards your State Pension.
You need 35 years’ worth of National Insurance contributions to qualify for a full State Pension. A year’s worth of credits is worth the same as a year in paid work. Given the full new State Pension is £10,600 (2023/24), one year of missing credits could mean you are roughly £300* worse off.
Furthermore, by registering, it also means your child will get a National Insurance number without the hassle of having to apply for one.
*This does not account for any future rises in the State Pension.
- If one partner is unemployed or earns less than the national insurance threshold, and one partner earns £50,000+ per year, it’s still worth the lower-earning partner registering for child benefit if you have a child under 12. Whilst there may be no financial gain, it means the lower earning partner will still receive national insurance credits, thus boosting their pension in the long run.
- If you have not previously registered for child benefit due to this means testing, you can now retrospectively claim back National Insurance credits via an online form here or alternatively contact the Child Benefit Office.
- You may be able to reduce or avoid the HICBC by:
– Reducing your income by salary sacrifice or an upcoming bonus in exchange for an employer pension contribution instead. It may also be possible to exchange salary for more childcare vouchers if you are under the ‘old’ employer-supported childcare scheme.
– Making a private pension contribution. The effective reduction is 125% of the actual amount paid into the pension scheme.
If you would like to know whether these options are suitable for your circumstances, please speak to one of our friendly experts on 0808 156 1176 or click on the link (bottom left) to book a free, no obligation chat today.
The Sunday Times launched a campaign for reform of the high income child benefit charge. The ‘Play Fair on Child Benefit’ campaign is intended to make the system “simpler and fairer for families.”
The proposed five-point plan calls for the benefit to be assessed on household rather than individual income; for the threshold to be increased and to rise with inflation; and for parents to be paid the correct amount, rather than having to pay back what they are overpaid via a tax return.
This blog is intended as an informative piece and should not be construed as advice.
If you have any further questions, please don’t hesitate to contact us. If you’re a client you can reach us on 0161 486 2250 or by getting in touch with your usual Equilibrium contact. For all new enquiries please call 0161 383 3335.