What is Child Benefit?
Child benefit is money that is paid to parents or guardians raising a child. This is applicable to England, Scotland, Wales and Northern Ireland. It is not a taxable benefit however could make you liable to a tax charge if you or your partner warns over £50,000.
People who are fully employed and earns over £50,000 and claim child benefit will need to fill out a self-assessment tax return.
Please note this guide is focused on the high income child benefit charge rather than generalised information about Child Benefit, if you would like more generalised information such as how it works or how to claim please click here.
How much is the charge?
The charge you need to pay depends on how much your adjusted net income for Income Tax exceeds £50,000:
If your income is between £50,000 and £60,000, the charge will be 1% of your Child Benefit for every £100 of income in that range. The charge won't exceed your Child Benefit amount.
If your income is over £60,000, the charge will be the same as your full Child Benefit, so you won't gain any extra benefit from receiving it.
Couples can have a combined income of up to £100,000 without being affected, as long as neither individual earns over £50,000. For instance, if both partners earn £45,000 each, they won't face this income tax charge.
Any charge you owe will be based on your adjusted net income for Income Tax. This means your taxable income after deducting allowable reliefs like pension contributions or charitable donations.
Example
Emily and Marcus have a baby. Emily stays home to care for the baby, while Marcus earns £51,000 a year (this is his adjusted net income).
Since Marcus earns over £50,000, he needs to pay additional tax to return some of their Child Benefit.
His income is £1,000 (10 x £100) above the limit, so the added tax amounts to 10% of their Child Benefit, which is £21.80 per week. Thus, he pays an extra tax of £113.36 per year (£2.18 x 52).
How is the charge paid?
You'll handle the payment for the charge by using a self-assessment tax form. It's your responsibility to ensure payment, even if HMRC doesn't get in touch with you.
You have the option to decline receiving Child Benefit to avoid the charge, and you can change your decision later.
Is it worth claiming Child Benefit if you earn more than £60,000?
If you or your partner make over £60,000 a year, you might think about not getting Child Benefit due to having to pay the full benefit back. But, it can still be smart to apply for it, especially if one of you doesn't work or earns less than the lower earnings limit for National Insurance Contributions.
By applying for Child Benefit, even if you don't want the money, you ensure you don't lose out on:
National Insurance credits that secure your State Pension entitlement.
Your child getting a National Insurance number automatically before they turn 16.
Other benefits like Guardian’s Allowance.
If you want your Child Benefit payments to stop
You can choose not to stop receiving Child Benefit payments.
This avoids the hassle of paying extra tax.
You won’t have to complete a tax return.
Please click here, if you would like to opt out.
Need help with an self-assessment tax return? Feel free to contact us at info@kmaccountancy.co.uk.
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