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Published 15 April 2024
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Child Benefit Tax Charge: Is It Worth It For You?

From April 2024, working parents earning between £60,000 and £80,000 are now eligible for Child Benefit. But claiming this government support comes with a catch: filing a personal tax return to pay some or all of it back. Here’s how to weigh up whether it’s worth it.

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If there was a ‘rabbit out of the hat’ moment in the 2024 Spring Budget, the change to child benefit eligibility was probably it, with the income limit moving from £50,000 to £60,000, capped at £80,000 instead of £60,000. 

However, as UK wages grow, some parents may be questioning whether the money they’re entitled to is worth the hassle of claiming at all.

We spoke with two money experts, both of whom have children, to help you get to grips with the high income tax charge dilemma. 

Crunch the numbers

Only you know how much difference an extra few hundred pounds can make to your family. The best way to decide whether claiming child benefit is worth it for you is to look at what you’re entitled to, then consider where in your household budget you could allocate those extra funds. 

For example, a single-earner household with two children that earns £65,000 would be taxed around £550 of the child benefit they receive, leaving them with around £1,660.  Since school dinners cost around £2.80 per day in many parts of the UK, this amount could cover two children’s school meals for a year, with cash left over for uniforms and shoes.

Families with two children, with one income of £75,000, will pay more tax, leaving them with just £555 of child benefit. But claiming this money could mean that more than half of your childcare bill for the six-week summer holiday is covered – for one child (estimated at £943 according to the charity Coram Family and Childcare).

Shake off the benefits stigma 

Cathy Brennan from Belfast, Northern Ireland, is a 48-year-old mum of three including one child with ADHD and autism. She told NerdWallet it took her years to apply for the financial support her family was entitled to because of a “mental block” about accepting government help. 

When she finally made the call to the government helpline, she was told; “Stormont [isn’t] going to send you a letter saying thank you very much for not claiming what you’re entitled to.” Brennan now works as a financial adviser and believes many families in financial difficulty either don’t know what they’re entitled to, or feel uncomfortable applying when “there are other people worse off.”

Stephanie White, a financial wellbeing and education specialist based in Bournemouth, England, agrees. “There’s still a huge stigma around benefits. A lot of people just don’t feel empowered enough to think ‘I’m entitled to that’. And there’s a bit of shame still around [benefits] so they will not go and find that information out.”

White is a single mum who will be directly impacted by changes to child benefit payments. She’s keen to remind parents of the reason child benefit exists in the first place: “It’s enabling you, as a parent, to be able to feed and provide for your child.”  

Tackle your ‘life admin’

Aside from the lack of awareness, parents on higher salaries may be reluctant to claim child benefit due to the requirement to file a personal tax return, or self-assessment. 

Even if your financial situation is relatively straightforward, completing a self-assessment can be time-consuming. You’ll likely need to go back through a year’s worth of payslips or self-employed income, as well as pension contributions, charity donations and other expenses.

For parents juggling children with a full-time job, this level of admin can be off-putting; the government has been criticised for placing this burden on families. HMRC’s plans to scale back the level of telephone support available for people filing their self-assessment added further anxiety, but this decision has since been reversed.

While some consider it worthwhile to hire an accountant to assist with their tax return, Brennan, who worked in the accounting profession for 17 years, says it’s quite easy for most people to do it themselves. “It teaches you to have some financial literacy,” she said, adding: “It’s like anything, the learning is in the doing.”

Claim it and save it

For parents whose pay fluctuates month to month, working out where you sit on the scale between £60,000 and £80,000 can be tricky. Estimating income can be difficult for self-employed professionals, as well.

One option is to put the money you receive in child benefit into a separate savings account, and leave it there until it’s time to complete your self-assessment. After filing your return, HMRC will indicate how much you’re required to repay, at which point you can withdraw the appropriate amount from your savings and add it to any other tax charges you owe. 

While the child benefit money is in your savings account, it could earn you interest, which will be yours to keep, subject to income tax. 

Register and then opt out

If you (or your partner) expect your income to exceed £80,000 this tax year, claiming child benefit may not leave you financially better off. However, it could still be worth registering and opting out of the payments because child benefit is linked to National Insurance contributions. For full-time homemakers, or parents taking a career break, registering for child benefit can help build up your state pension entitlement while you’re not working.

Once you’ve opted out, you’ll have no high income tax charge to pay and there’s no requirement to file a self-assessment unless you have other income streams that are not taxed at source.

Talk to your partner 

In many households, the father is the higher earner, with mothers more likely to be the primary caregiver. Due to a possible lack of awareness, many women may unknowingly miss out on National Insurance credits.

Meanwhile, the absence of money conversations in the home has contributed to thousands of higher earners being fined for failing to declare child benefit payments on their tax returns. When couples do not have visibility of their partner’s income, the higher earner can be left unaware that their co-parent is claiming a benefit which is taxable for them.

Sometimes women, once they’ve had the baby, will apply for child benefit and have their own separate bank account, White explains. So, the men never see this child benefit going in, so it’s just not on their radar.

“Just because you’re in a relationship and you’ve got one high earner, that doesn’t mean to say that there’s equality in how household funds are distributed. Typically, the childcare is seen as a woman’s problem,” says Brennan, who believes the responsibility for managing childcare costs should be shared 50:50. “It’s about being more open with how you manage your finances,” she continues, emphasising that the onus to investigate what government support is available should not fall all on one parent.

Your money, your call

For higher earners, the dilemma of whether or not to claim child benefit may boil down to how closely you’re watching your income and expenditure, and how openly finances are talked about in your home. 

For families struggling with mortgage affordability because of the cost of childcare, a few hundred pounds might well justify the extra admin.

Use the government’s child benefit tax calculator to work out your estimated entitlement. Then it’s up to you whether or not you claim it.

Image source: Getty Images

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