Child benefit is currently a universal benefit. It is worth £20.30 a week for the first child, then £13.20 a week for each subsequent child. New rules being introduced from January 7 next year, mean that any family in which anyone earns more than £50,000 will see their payment reduced, depending on the earnings above that level. Anyone who earns more than £60,000 will see their family’s benefit disappear completely.
HMRC is just beginning to write out to explain that those who are no longer entitled to the benefit, or who earn between £50,000 and £60,000 and are therefore entitled to only some of it, can choose either to give it up completely or to continue to take the benefit and then have it taken back from them when they fill in their tax form for the financial year.
Child benefit is usually paid to the mother of the children, but in many cases it will be the father who earns more than £50,000, meaning that the money must be clawed back from someone who never received it.
The new child benefit rules mean that only the highest earner in a household has their income taken into account when deciding whether child benefit is due to the family. While a household where a single earner takes home £60,000 will lose the entire payout, households in which both parents earn £50,000 – giving a household income of £100,000 – will not see any changes to their child benefit payments.
Letters about the change are now being sent to all those in the Pay As You Earn (PAYE) system earning more than £50,000 – even those without children or stepchildren. However, no notification is being given to those who are self-employed and many of those may still be unaware of these changes.
Many parents who have chosen to step back from their career to look after their children can end up losing their child benefit entirely despite having one earner earning just £60,000. In contrast, if both members of a couple worked but earned less, for example £49,000 each, they would take home far more money as a family, but keep the child benefit anyway.
If you elect not to receive child benefit you should still receive National Insurance credits, which will count towards your state pension entitlement if you are not working. Technically speaking you are still claiming the benefit, just not getting the money.
A new mother who simply doesn’t claim the benefit because of her husband’s earnings won’t get these NI credits, which could have serious consequences years down the line.
Those who receive a bonus
Not everyone’s income is the same every year. Those whose bonus income fluctuates are in particular danger of being left out of pocket by the changes as they may elect not to take the benefit, but then find that in a year when they receive less their income does not take them over the threshold.
If there is doubt about how much income you will receive, it is generally recommended that you continue to claim the benefit. If the bonus pushes you beyond the threshold, the payments can be clawed back at a later stage via PAYE or the self-assessment system. It is important to remain vigilant however and set aside funds to repay any over claimed benefits if required.
The biggest anomalies centre around what are often known as “blended” families. If a mother moves in with a new partner, he could find himself landed with a tax charge if she continues to claim child benefit, even though he has no biological relationship to the children. But their father – who may have moved out of the family home years previously – won’t necessarily face the same tax charge.
There are some serious questions posed by the change however. The new rules mean that HMRC will be looking at the highest earner in a household, but without a clear definition of what a household is – for example, in the case of married parents who separate. One earner is then living at a different address – how will they be treated ? We do not seem to have any guidance on that at the present time.
There are sensible financial planning steps that can be taken if you think you may be close to the threshold so that you can retain the benefit and protect your household income so do take the opportunity of speaking to us as soon as possible so we can explore what we can do for you.