Earning over £50,000 is an exciting milestone. But did you know it could impact the child benefit you receive? Many families are unaware that hitting this income threshold comes with a responsibility to repay some, or even all, of their child benefit. As accountants, we are here to help you understand what this means and how you can stay compliant with HMRC regulations while maximising your finances.
Below, we’ll break down everything you need to know about child benefit repayments if your income exceeds £50,000, using simple, straightforward language. Let’s get started!
1. What is the child benefit, and who is eligible?
Child benefit is a government allowance designed to help parents with the costs of raising children. It’s paid to those responsible for a child under 16 (or under 20 if they’re in approved education or training). In 2024, the weekly rate is £25.60 for the eldest or only child and £15.90 for each additional child.
However, if you or your partner earn more than £50,000 a year, you may have to repay some or all of the child benefit you’ve received. This repayment is known as the “High-Income Child Benefit Charge” (HICBC). The higher your income over £50,000, the more you’ll need to repay.
Understanding the income threshold
The key figure here is the £50,000 income threshold. This includes not only your salary but also other taxable income such as bonuses, rental income, and even some types of savings interest. It’s important to understand how all of your income adds up to this threshold, so you can plan accordingly.
2. How does the high-income child benefit charge work?
Once your income exceeds £50,000, you will start to repay 1% of your child benefit for every £100 earned over the threshold. So, if your income is £55,000, you will repay 50% of your child benefit. If your income reaches £60,000 or more, you will repay the full amount.
Calculate your child benefit repayment
Here’s a simple table to help you understand how much you may need to repay:
Income | Child Benefit Repayment Percentage |
Up to £50,000 | 0% |
£51,000 | 10% |
£55,000 | 50% |
£60,000 or more | 100% |
If you’re unsure about your income or want a more accurate calculation, our team can provide a detailed analysis to help you understand exactly where you stand.
3. Do you need to fill out a self-assessment tax return?
If your income is over £50,000 and you or your partner receive child benefit, you’ll need to fill out a self-assessment tax return to pay back the charge. This is an annual requirement, and failing to do so can result in penalties from HMRC.
How we can help with self-assessment
Completing a self-assessment tax return can be confusing, especially if it’s your first time. At SGL Accountancy, we offer self-assessment services to make this process easier. We’ll guide you through each step, ensuring your return is accurate and submitted on time.
4. Tips to manage your income and reduce your liability
There are legitimate ways to reduce your taxable income, which can help you avoid the high-income child benefit charge. These methods include making pension contributions or donating to charity through Gift Aid. These actions can reduce your adjusted net income below the £50,000 threshold.
Strategies to consider
- Pension contributions: Increasing your pension contributions can lower your adjusted net income, potentially saving you from having to repay some or all of your child benefit.
- Charitable donations: Donations to charities under Gift Aid can also reduce your income for tax purposes.
Our experts can provide tailored advice on the best strategies for your unique financial situation.
5. Should you stop claiming child benefit?
Some families consider stopping their child benefit claim altogether to avoid the hassle of repaying it through self-assessment. However, this might not always be the best option. Even if you repay all the benefits through the HICBC, claiming it helps protect your National Insurance credits, which can count towards your State Pension.
Why does it protect your national insurance credits?
National Insurance (NI) credits are contributions that count towards your State Pension and other benefits. To qualify for the full State Pension in the UK, you typically need to have 35 years of NI contributions. If you don’t claim child benefit, you could miss out on valuable NI credits that are automatically provided to parents or guardians of children under 12 who claim child benefit. These credits count as contributions towards your State Pension, even if you’re not currently paying National Insurance because you’re not working or have a low income.
If you are a parent who chooses not to claim child benefit, perhaps to avoid repaying it later due to your or your partner’s high income, you may inadvertently lose out on these National Insurance credits. This can be particularly impactful if you’re taking time off work to care for your child. Without claiming child benefit, you might not receive the NI credits that protect your State Pension rights, potentially resulting in a reduced pension amount when you retire.
To avoid losing these important credits while choosing not to receive the child benefit payments, you should still complete the child benefit claim form but opt out of receiving the payments. This ensures you remain entitled to the National Insurance credits without the need to repay the child benefit later due to the High-Income Child Benefit Charge.
By understanding this, you can make informed decisions that safeguard your financial future while managing your child benefit responsibilities effectively.
To claim or not to claim?
If you decide not to claim, make sure you’re not missing out on valuable National Insurance credits. Contact our team for a free consultation on whether claiming is the right choice for you.
6. Common mistakes to avoid
Many people make mistakes when dealing with child benefit repayments. A common error is not registering for self-assessment or failing to declare all sources of income. Others underestimate their income, forgetting to include bonuses, rental income, or dividends.
Avoid these pitfalls
- Always include all forms of income.
- Register for self-assessment if you or your partner’s income exceeds £50,000.
- Double-check your tax return to avoid penalties.
Need help navigating these complexities? Our team of accountants is here to ensure you get it right the first time.
7. What happens if you don’t repay?
Failing to repay your child benefit when required can result in fines and penalties from HMRC. Penalties start at 10% of the unpaid tax and can increase depending on the severity of the oversight.
Consequences of non-compliance
- Initial Penalties: Up to 10% of the unpaid tax.
- Repeated Offences: Penalties can escalate, and interest may be charged.
Stay compliant with the help of our expert tax advisors. We offer a comprehensive review of your tax situation to ensure you’re fully covered.
8. How to stay compliant with HMRC
Staying on the right side of HMRC is easier than you might think. Ensure all your documents are in order, register for self-assessment on time, and declare all income sources.
Our support services
At SGL Accountancy we offer ongoing compliance support to help you manage your tax responsibilities smoothly. From initial registration to submitting your return, we have you covered.
9. Are there any exemptions?
Certain circumstances might affect your liability to repay child benefit. For example, if you have recently separated from your partner, only the person with the higher income will be liable for the repayment. It’s important to stay informed about how changes in your personal circumstances can impact your tax obligations.
Check your eligibility
If you’re unsure whether any exemptions apply to you, contact us for a personal consultation. We’ll assess your situation and help you understand your obligations.
10. How we can help you
Dealing with child benefit repayments doesn’t have to be stressful. Our team of professional accountants is here to make things simpler for you. We provide bespoke advice tailored to your unique circumstances, ensuring you stay compliant while maximising your financial potential.
Why choose us?
- Personalised Advice: We offer tailored advice that fits your needs.
- Experienced Team: Our experts have years of experience handling child benefit repayments.
- Friendly Service: We use simple, jargon-free language to make things easy to understand.
If you need more help or want to discuss your specific circumstances, don’t hesitate to contact us today. We’re here to help you every step of the way!