Child Benefit is a universal benefit; every family with a child under 16 (20 if the child is in approved education or training) is entitled to receive it. However, since 2013, Child Benefit has been clawed back from certain higher rate taxpayers by means of a tax charge. This tax charge applies where the higher earner in the family has an annual income of over £50,000. When that person’s income exceeds £60,000, all the family’s child benefit is clawed back as income tax.
However, in the current tax year to 5 April 2022, parents who pay income tax at a maximum rate of 20% may also be liable to repay some of their child benefit as tax, as the 40% tax rate applies only to income above £50,270. Where you are the higher earner in your family and your annual income is over £50,000, you need to declare the amount of child benefit your family receives
on your annual tax return. If you don’t normally complete a tax return, contact HMRC to register for self-assessment.
We can help you with this.
It may be possible to avoid the child benefit tax charge by equalising the income levels of both earners in the family. This is possible if both taxpayers run a business together, but not so
easy when both are employed by third parties. Another strategy is to reduce your relevant income below the £50,000 threshold by using tax relief provided by Gift Aid donations or personal pension contributions.
It is important to claim Child Benefit, as the claim triggers the issuance of a National Insurance number for the child and can provide National Insurance credits for the claimant parent while they are not working.
If you are a high earner, you can continue the Child Benefit claim, but opt out of receiving payment of the benefit, to avoid having to deal with the tax charge. This opt-out can be reversed at any time should your income drop below £50,000.
We can help you deal with all matters related to child benefit, including the possible tax charge that claiming it may trigger.