What do you need to know about Child Benefit?

Bright Beany By Katy Dales

So you’ve had a pay rise - brilliant! Every little helps at the moment with ever rising prices and increased cost of living.

You might think this just means paying a little extra in income tax, however it can have other implications too, particularly for parents receiving Child Benefit.

Child Benefit and earnings over £60,000

If either you or your partner earns more than £60,000 a year before tax, then you’ll have to pay back some (or all) of your Child Benefit in the form of extra Income Tax.

Who does the tax on Child Benefit affect?

The tax due on child benefit for those earning over £60,000 but less than £80,000, is based on each parent’s individual income, as opposed to the combined household income. So if one partner has an income exceeding £60,000 each year, the higher earner of the two will have extra tax to pay - this is called the High-Income Child Benefit Charge - but the child benefit amount will still be paid.

If you or your partner’s income exceeds £80,000, the extra tax will cancel out the Child Benefit amount altogether.

Anyone with income below £60,000, which could mean a couple each earning £59,999 (£119,998 in total) will receive the Child Benefit in full as no extra tax will become due

How much tax will you pay on Child Benefit if you earn over £60,000?

For every £200 of income above £60,000, 1% of the Child Benefit amount needs to be paid as a ‘High Income Child Benefit Charge’ via a self-assessment tax return.

You can work out how much tax will become due by using the Government’s calculator:

What happens if you opt not to receive Child Benefit?

You could opt not to receive the Child Benefit and avoid the payment of extra tax. However if you do this, you should still complete the Child Benefit claim form, as this will mean you continue to accrue National Insurance (NI) credits.

This is particularly important to those who have stopped working to look after children, as the amount of State Pension you’ll receive is dependent on your NI record, for which you now need a minimum of 10 qualifying years to receive anything from the state, and 35 years to qualify for the full state pension.

Therefore it is really important to still ‘claim’ the benefit, even if there is no monetary value, and you can elect not to receive the actual payment.

Using salary sacrifice to reduce your tax liability

There is a way to avoid getting caught by the extra tax, by reducing your taxable income. You can do this by making a pension contribution, opting to sacrifice salary for childcare vouchers (if your employer supports them) or by making charitable donations.

Contributing to your pension to reduce your income

Pension payments taken from income before you pay tax will reduce your taxable income, so if you reduce your income to less than £60,000 (after all allowances) there will be no High-Income Child Benefit Charge to pay.

Additionally, pension contributions for those with this level of earnings will attract additional tax relief.

If you need any further advice on Child Benefit and the High Income tax charge, get in touch with us today.

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