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PARENTS are being warned over a little-known loophole that could stop their child benefit payments.
Child benefit is a valuable income top-up for parents, worth £25.60 a week for an eldest or only child and £16.95 a week for any other children.
It’s currently claimed by 7.7million families to help support 13.2million children.
However, not everyone is eligible for the payment, and if you hit the child benefit taper, you’ll need to start paying some of your child benefit back.
Robert Salter, director at accounting firm Blick Rothenberg, said: “Families looking to claim child benefit, should be aware of the child benefit clawback.
This is officially known as the high-income child benefit charge (or HICBC for short), which is applied when the “adjusted net income” for one parent or partner in the family is above £60,000 per annum.
Anyone earning over £80,000 is not eligible for child benefit and has to pay all of the benefit back if they make a claim.
However, Robert has issued a warning for parents about how HMRC defines the term “adjusted net income.”
You might assume that the HICBC is based only on your annual salary shown on your payslip.
However, Robert said: “It is important that families understand that the term adjusted net income is not just their salary or wages (or profits, if they are a sole trader).
“This also related to any taxable benefits-in-kind which they might receive from their job.”
For example, this could include private medical insurance, a company car or car fuel benefit.
“These benefits can be a particular ‘trap’ for the unwary,” added Robert.
WHAT ELSE COUNTS?
Robert also noted that any taxable investment income – whether dividends, bank interest or rental income – can also be adjusted net income for the purposes of the HICBC.
He said: “Spouses with different levels of income – say one earns a salary of around £60,000 per annum and the other earns a much lower salary (or is not working) – should consider whether such income should be in the name of the higher earner, joint names or solely in the name of the lower-earning partner.”
The HICBC applies to the higher-income partner in a couple, irrespective of the income of the other partner.
DON’T FORFEIT EXTRA PROTECTIONS
If you already earn well over the HICBC, you might think it’s not worth applying for child benefit.
However, if you have a partner who is on a low income or out of work, you could be forfeiting valuable National Insurance credits.
When you make a claim for child benefit for a child under 12, you receive these credits for free.
NI credits fill in any gaps in your record and work by protecting the amount of State Pension you receive when you retire.
The reason NICs are so important is because you need 35 NIC years to receive a full new State Pension.
By not claiming child benefit, thousands of parents are forgoing these NI credits and damaging their state pension entitlement in retirement.
If you don’t have enough qualifying years for a full state pension, adding one extra year to your NI record could boost your retirement by £300 a year.
However, even if a family’s adjusted income is over the child benefit threshold, you can claim these NI credits without also claiming child benefit payments.
When you apply for child benefits online, you can declare if you want to receive child benefits or just the NI credits at question number 62.
