If you had previously opted out of receiving child benefit because you would have had to pay the High-Income Child Benefit Charge, but you have recently faced a drop in income due to the coronavirus, then you might find you are now eligible to make a claim.
What are the rules surrounding the High-Income Child Benefit Tax Charge (HICBC)?
The rules surrounding successful claim of child benefit, include restriction for high earners, that is those earning over £50,000. The rules outline what counts as income, but it is essentially your total taxable income before any personal allowances, less things like gift aid.
Where income sits between £50,000 and £60,000 then a portion of the child benefit claimed will be paid back in extra income tax. You will be required to pay back 1% of your family’s child benefit for every extra £100 you earn over £50,000.
If income is over £60,000 then you will need to repay all of your child benefit as income tax.
In addition, be careful and make sure you fully understand the rules. What can often catch people out is misunderstanding who the higher earner could be.
For example, if a family receives child benefit and one party to the couple is a higher earner, the charge will apply.
However, in an example where a couple who have children decide to separate (they are not higher earners) and go on to form new relationships; if the parent who has the children living with them and claims the child benefit, goes on to move in with their new partner and they earn over £50,000, the HICBC will apply. This is even though the child for whom child benefit is being claimed, is not the child of the higher earner.
How much is it?
It is important to note that child benefit is separate to universal credit and also benefits are assessed against an overall benefit cap which needs to be considered.
However, to give you an idea of the potential benefit you could claim, a family with two children could claim just over £1,800 a year in child benefit.
For the new tax year 2020/21, the amount that parents can claim has risen to £21.05 a week for a first child and £13.95 a week per child for subsequent children – a rise of £32 a year to £1,820, up from £1,788 a year in the previous tax year, for a family with two children under 16.
When should I make a claim?
If your circumstances have changed and your income has dropped then you would be wise to review your position and make a claim without delay, as with child benefit you are only able to back date claims by up to 3 months.
Is there anything else I should consider?
Something families are also often unaware of is that there may still be a benefit in making the child benefit application, without actually receiving the payment, if you are affected by the HICBC. An example of this would be, one party to a couple earns over £60,000 so the child benefit cannot be claimed otherwise it would need to be repaid. However, the other parent stays at home to look after the children and they are not earning. By making the application each year, but not receiving the payment/or paying this back via the HICBC, this can give the parent not earning national insurance credits which count towards their state pension so they do not have gaps in their national insurance record.
Carrying on from this example and in addition, if the parent not working decided to go back to work and their parents were to look after the children, they could look to pass on this national insurance credit to their parents, to allow them to benefit.
Sadly, national insurance credits can be overlooked and often it is not until closer to retirement that these are reviewed. There is then less time to ensure a sufficient number of years have sufficient national insurance credits which can lead to large voluntary contributions having to be made, if this is possible, dependant on which years have gaps.
The personal tax accounts that HMRC suggest every individual sets up to manage their personal details, has details of both child benefit and national insurance credit records specific to that individual and therefore, if you don’t have this set up, we would recommend it as a useful source of information.
In addition, HMRC have indicated more and more information will be made available via the tool in the future and it is intended that many applications and claims will need to be made via this.
For more information regarding how to set up your personal tax account, please refer to HMRC’s guide.
In summary, make sure you benefit from child benefit as much as possible and if your circumstances have changed, take time to review this.