If you or your partner earn less than £50,000 then you don’t need to worry, your child benefit will be paid to you in full.
What Counts as Income for Child Benefit
Your income may be made up of different elements and you may have deductions that need to be included when working out your income.
The following count as income:
- Gross salary before tax;
- Taxable benefits like a company car or medical cover;
- Income from pensions before tax, including the state pension;
- Other income before tax like self-employment or dividends;
- Rental income.
The following are deductions you can make when working out your income for the Income Tax charge purposes:
- Pension contributions deducted from your pay;
- Retirement annuity contracts;
- Cycle to work scheme
- Donations made under gift aid.
How Much Child Benefit Tax Charge Will You Pay?
You have to pay back 1% of child benefit received for every £100 you earn over £50,000. Here’s an example:
Chris and Jo have their first baby and are eligible to claim child benefit. Chris decides to stay home to look after the baby, while Jo stays in work earning £52,000 a year. Chris will be able to elect to be paid the child benefit, that way a national insurance credit will be given that avoids gaps which affect state pension. As Jo earns more than £50,000, some child benefit will need to be repaid in the form of income tax.
The extra tax that needs to be paid is based on the £2,000 over the limit (£2,000/100 = 20) and the amount of child benefit they are paid (currently £20.70 per week for 2019/2020). So the total extra tax to pay will be 20% of £20.70 per week annualised, which is £215.28 (£20.70 x 20% x 52 weeks).
If You or Your Partner Earn More than £60,000
If you or your partner earn more than £60,000 you need to repay all child benefit you have received. You can make an election to stop receiving child benefit payments (see below). That way you’ll avoid the hassle of getting paid only for you to give it back.
It is important to register and elect to stop getting payments since the child benefit scheme includes national insurance credits. These credits avoid any gaps in national insurance contributions, that way your state pension is protected. So if your partner stays at home to look after your child but you earn more than £60,000 you’ll still be able to protect your partners’ state pension. It also means your child will automatically receive their national insurance number when they turn 16.
You can stop your child benefit payments by:
- Completing the online form in your personal tax account;
- Calling the Child Benefit Office on 0300 200 3100
How to Pay the Child Benefit Tax Charge
You must pay the tax charge by registering for self-assessment and filling in a tax return. You need to register with HMRC by the 5th October following the tax year you started receiving child benefits. So if you started to receive child benefit in February 2019, you’ll need to register for self-assessment by 5th October 2019.
You can register to fill out a self-assessment tax return online and you’ll need to tick the box to let HMRC know that you need to pay the child benefit tax charge. Once completed you’ll receive a UTR number and have to complete a tax return by 31 January each year.
Self Assessment for the High Income Child Benefit Charge
When you fill out your tax return you’ll need to tell HMRC you need to pay the charge by ticking the box in the tailor your return section.
Once you have done that you’ll be presented with the following screen:
You’ll need to fill in all the boxes and then HMRC will calculate the amount of child benefit you were entitled to during the tax year. The child benefit tax charge you need to pay will be calculated automatically and included in the “Tax Calculation” section.