Child benefit and the higher income charge

Many people or their partner will receive child benefit payments for their children, usually paid every four weeks, at the following rates (tax year 2022/23):

• First child paid at £21.80 per week
• Each additional child paid at £14.45 per week

Child benefit payments are tax-free, meaning they’re not subject to income tax. However, where the income of the highest earning partner (only where you are living together) exceeds £50,000, they are subject to a ‘high income child benefit charge’. This charge claws back the payments received.

What counts as a partner?

A partner doesn’t have to be a child’s biological parent. If a cohabiting partner contributes at least an equal amount towards the child’s upkeep, they can be subject to the charge, too.

How is this calculated?

For every whole £100 of income above £50,000, 1% of child benefit received in the year is repayable as a charge via the self-assessment return (as part of your tax liability for the year). Consequently, should the charge bearer’s income reach £60,000, they would be required to repay all the child benefit received during the tax year.

Example

Mr and Mrs Smith live together and have three children. Mr Smith receives total child benefit for the year of £2,636.40.

Mr and Mrs Smith both work and their respective income for the year is as follows:

Mr Smith: £20,000

Mrs Smith: £55,000.

Whilst Mr Smith receives the payments, as Mrs Smith has income over £50,000, she incurs the charge. This is calculated as follows:

                                           £

Mrs Smith’s income       55,000

Less: Threshold            (50,000)

                                     5,000 

As 1% is charged for every £100 over £50,000, 50% is repayable, being £1,318.20.

Opting out

There is the option to opt out of receiving child benefit. This would be sensible where income exceeds £60,000 and the full amount is repayable. However, if income fluctuates above and below £60,000, it would be sensible to continue receiving the benefit, to make sure no benefit is lost. Any charge payable can then be paid back via your self-assessment tax return.

National Insurance contributions

What can sometimes be overlooked with child benefit is that National Insurance contributions (NICs) are credited, too. These are provided until the youngest child reaches 12 years.

Therefore, if the recipient doesn’t receive NICs, perhaps due to unemployment, it’s advisable to complete the claim forms regardless. When doing so, make sure you tick box 62 as “No” – this means you do not receive the benefit but still get an equivalent NIC record as though you did. The NIC credits build up your entitlement to the state pension, and to receive the full state pension, you need 35 qualifying years of credits.

Without claiming child benefit you would otherwise need to make a voluntary Class 3 payment costing £15.85 per week, or £824.20 a year.

Should you have any queries, please get in touch with your main contact at Larking Gowen. You can find contact details on the Our People section of Larking Gowen’s website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Luke Jackson