Many families that claim Child Benefit are being caught out and having to pay back money to HMRC.
The benefit is a monthly payment available to parents or anyone in charge of looking after a child. The payment amounts are £21.80 a week for the first child and £14.45 a week for any additional child.
However, if you are on a higher income, you could be caught out by a tax rule. You become subject to paying the High Income Child Benefit (HICB) tax charge when one parent or guardian starts earning over £50,000 a year.
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When you start earning above this amount, you have to pay back 1% of the Child Benefit you receive for every £100 earnt above £50,000. Those who earn £60,000 or more have to repay all of their Child Benefit, reports The Mirror.
The £50,000 threshold applies only per person. For example, couples can have a combined income of up to £100,000 and not be affected, as long as neither of them has an individual income of over £50,000.
Clare Moffat, pensions and legal expert at Royal London said: “More and more families are being caught by this tax charge as the earnings threshold hasn’t changed since it was introduced. If it had increased with inflation then the starting amount would be over £63,000.”
She continued: “It can also feel unfair as you could have a couple earning £49,999 each and the charge wouldn’t apply but it would apply if there was only one earner in a household and they earned over £50,000.”
Around 340,000 parents end up having to pay back some or all of their Child Benefit or end up being slapped with a fine. You can use this Child Benefit tax calculator or call HMRC on 0300 200 3100 if you’re unsure if you need to pay the HICB charge.
If you don't want to pay the charge, you can opt out of Child Benefit payments altogether by contacting HMRC. However, claiming Child Benefit can help boost your state pension in later life if you’re not working.
Someone who receives Child Benefit for children under the age of 12 is also treated as if they had paid National Insurance contributions. You need a certain amount of NI credits to claim the state pension in later life, so it's important not to miss out on these.
You need at least 10 years’ worth of NI contributions to get any state pension, and 35 years to get the full new state pension.
Who is eligible for Child Benefit?
You need to live in the UK and be responsible for someone under the age of 16, or under 20 if they’re in approved education or training, to claim Child Benefit. Being responsible for a child usually means they live with you, or you pay at least the same amount as Child Benefit towards looking after them.
If two people look after a child, only one person can claim Child Benefit. You can claim Child Benefit if you fostered a child, as long as the local council is not paying anything towards their accommodation or maintenance.
Child Benefit is also available if your child is adopted, as well as in certain circumstances where you're looking after a child for a friend or relative.
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