Child benefit is a government allowance available to parents or guardians of children under the age of 16, provided they do not they stay in full time education past this age.
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The allowance currently stands at £20.70 per week for the eldest or only child, then £13.70 for additional children after the first.
However, the Chancellor of Exchequer has begun to claw back this tax benefit for all earning over £50,000 a year, which is known as the ‘child benefit charge’. This came about back in 2012, when HMRC implemented a system to deduct 1% of the benefit for every £100 earned over the £50,000 yearly income. This effectively meant the whole benefit entitlement was removed if income rose above £60,000 per year.
Implications of the child benefit charge
For anyone with an income of over £50,000 per year, this will increase the amount of tax paid when it comes to self-assessment. This is best shown through an example:
- If a couple has three children aged between 4 and 15, they would be entitled to £2,480.40 throughout the year in child benefit (£20.30 +(£13.70 x 2) = £47.70 x 52 = £2,480.40).
- If one of them earns £56,000, this is £6,000 over the threshold, which means that 60% of the overall child benefit received will need to be paid back to HMRC.
- Although the couple are still able to claim the child benefit amount, they will have to pay back £1488.24; removing most of the benefit from the guardian.
The system has met with controversy as it fails to take into consideration the impact on different families with different circumstances. For example, two parents earning £49,000 each will not be affected but a family with one parent earning over £50,000 and a stay at home parent or guardian will be.
Claiming benefits without incurring the tax
If you earn between £50,000-£60,000 and you want to claim child benefit without paying the extra tax, it is possible to do so by lowering your total taxable income below the threshold. Options to consider include increasing your pension contributions or opting in for a salary sacrifice scheme. As both of these are taken out of your income before tax, this would reduce total taxable income to lower than the £50,000 threshold.
Do I have to claim child benefits?
If you are worried about paying the extra tax by receiving child benefit, you can choose whether or not to claim it. This would result in paying none of the child benefit claw back through your self-assessment, however, HMRC are still encouraging you to fill out the claim form. This will aid in building up your national insurance credits, which will help to protect your entitlement to a state pension while also protecting guardians allowance and your child’s right to a NI number before their 16th birthday.
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