Childcare is undoubtedly a significant expense for any family. Despite child benefits being readily available to anyone who is responsible for a child under the age of 20*, many parents do not claim at all. This is often due to uncertainty as to whether it’s really worth claiming child benefits as a result of the rules that were introduced in 2013.
Below, we explain how claiming child benefits may affect different types of family situations, as well as provide advice on how to remedy any adverse outcomes that may arise.
What are parents entitled to with child benefits?
First however, let us explain what child benefits actually offer. Child benefits is money that can be paid to one parent (or an adult who is responsible for caring for a child) and is intended to help with household costs. You can receive £20.70 per week for your first child and £13.70 for all other children you have (there is no maximum number of children you can claim child benefits for). You are entitled to these child benefit payments until your child is 16 years old, or up until they are 20 if they remain in approved education or training.
What are the rules and how do they complicate claiming child benefits?
The first rule, as mentioned above, is that the money will only be paid to one parent. This can cause complications for separated couples who share childcare. The second rule affects those where either you or your partner earns an income of over £50,000. Once you or your partner earn up to this amount you will be liable to the high income child benefit charge (HICBC) which means you are required to pay back 1% of the child benefit amount received for every £100 you earn over £50,000. Where you or your partner earns in excess of £60,000 then 100% of the child benefit payments received will have to be repaid as income tax via a personal tax return. This is one reason why many couples choose not to claim child benefits.
How child benefits will affect different types of families
In the scenarios below we will assume there is only one child per household unless otherwise stated. If you have more than one child it will simply mean that you can claim £13.70 more for every additional child and does not change whether or not someone will be liable to pay tax.
A couple where one partner earns £30,000 and the other earns £50,500. Whoever earns over £50,000 will need to pay back 1% of the child benefit for every £100 earned over £50,000. This must be completed through a personal tax return form.
A couple where both partners earn £45,000. Despite having a total household income of over £50,000, there is no need to repay any amount of child benefits received. This is because neither partner earns an income of over £50,000 individually.
A couple where one partner earns £60,000 and the other earns £10,000. The full amount of child benefits received will need to be repaid. This will need to be done through a personal tax return and should be completed by the partner earning £60,000.
A separated couple where one earns £53,000 and the other earns £20,000. As child benefits can only paid to one person, any potential tax liability incurred will be dependent on who is primarily caring for the child and their income. If the person earning £20,000 is claiming child benefits, they will be entitled to keep the full amount – whereas if the person earning £53,000 is the primary carer and claiming the benefits they will attract the HICBC.
Where the child is living with the person earning £20,000 but the person earning £53,000 is paying for the majority of the costs of childcare they may choose to receive the child benefits themselves. This is possible so long as the other parent does not claim child benefits and that the costs they are contributing towards the child’s maintenance exceed the amount they would receive in benefits (they cannot be seen to be profiting from receiving child benefits). It is important to bear in mind that they will still be liable to pay the HICBC.
A single parent earning £18,000 who lives with their parents and one of their parents earns £56,000. In this scenario no one will face HICBC because HMRC is only concerned where a partner is earning more than £50,000.
A single parent who earns £35,000 has a child and would like their partner who earns £57,000 to move into their household. Once both parties move in together and live as one household, the person earning over £50,000 will need to pay HICBC even if it is not their biological child. If they earn over £60,000 then they will need to repay the full amount of child benefits received.
Two single parents each have their own child and both earn £38,000. They plan to move in together. Once they become one household they can continue claiming child benefits but only through one person. That person will then be seen as caring for two children so would be able to claim an additional £13.70 but they would not be able to claim two sets of £20.70 each as they would have done previously. As neither of them earn above £50,000 there is no HICBC to be paid.
Update for tax year 2020/21: child benefit payments will increase 1.7% to rise with inflation. For example, this means if you were receiving £500 per month, you will now receive an extra £8.50.
Is claiming child benefits worthwhile?
At first glance, for high earners, it may not seem that beneficial to claim child benefits. However, if we use an example of someone who earns £55,000 – the person would have to pay 50% of the child benefits back, but they would still have £533 more than to begin with. This money could be put into a junior ISA or savings account which would earn interest.
Another reason it is worthwhile to register for child benefits (even if you choose to opt out of receiving payments to avoid paying the tax) is that by doing so, you also automatically qualify for National Insurance credits. You need to have paid 35 full years’ worth of Nation Insurance Contributions (NIC) in order to be eligible to receive the full state pension and NIC credits will help fill in any missing years should you take time off work to care for your children.
How to avoid paying back child benefits if you’re a higher earner
For higher earners who would like to claim child benefits there are ways to help you reduce your HICBC or eliminate it all together. By far the most effective strategy is to pay into your pension fund as this will reduce your taxable earnings. If you earn £60,000 and pay £5,000 into your pension then you will only need to repay half the child benefits amount received. Should you choose to pay £10,000 you would not have anything back. We would highly recommend considering this option, especially where your employer offers a pension contribution match option. Alternatively, another route that will achieve the same outcome is to donate to charitable organisations through gift aid.
To help calculate how much child benefit you’ll receive and/or how much HICBC you or a partner will have to pay, you can use the government calculator.