Thousands of parents all over the country are getting letters from HMRC asking them to pay back their child benefit.
The bill can be thousands of pounds for what is called the High Income Child Benefit Tax Charge.
They have been caught by the means test imposed in 2013 that takes back some of the child benefit from a parent if they or their partner has an income over £50,000 – and all of it if they earn over £60,000.
Parents are informed of the rules when they first claim child benefit and most parents are well below the limits. But a change of circumstances, as outlined below, can easily send people over it.
They can become liable if their income has crept up over the years or a recent pay rise takes them over £50,000. The thresholds have not been increased
since 2013, even though wages have risen by 13%. One in five families is now liable for the tax charge as a growing number of people now earn over £50,000.
They have an income below £50,000 but move in with a new partner whose income is more than that. It doesn’t matter if the new partner is not the parent of the child. Indeed, the biological parent who lives separately does not pay the charge, whatever their income.
They are paid less than £50,000 but have a company car or other benefit in kind that counts as part of their taxable income and takes them over the threshold.
One way for those just over the threshold to escape the tax charge is to pay extra amounts into a pension, reducing what is called their “net adjusted
A person who does exceed the limit must fill in a self-assessment form and pay the tax. If they don’t, then HMRC will use the records it has of income and child benefit to track them down.
People can avoid the tax by opting out of child benefit. But it is very important to claim it first and then opt out. A parent who never claims child benefit will not get National Insurance credits towards their state pension, and their children will not automatically get a National Insurance number at the age of 16.