In March 2024, Chancellor Jeremy Hunt announced plans to address the “unfairness” in the current Child Benefit system. This followed extensive campaigning efforts by MoneySavingExpert.com (MSE) and its founder, Martin Lewis. Many families were receiving less support than others, or none at all, due to the complexities of tax regulations.
Child Benefit thresholds had been frozen since April 2013, but the UK welfare system underwent significant reforms in April 2024 with the implementation of changes to the High Income Child Benefit Charge (HICBC). The Government’s response aims to rectify disparities in treatment between households with varying income dynamics and ensure a fairer distribution of benefits for all families across the UK.
Child Benefit – A Quick Overview
Child Benefit is a government payment to help families with the costs of raising children. You qualify for Child Benefit if you’re responsible for raising a child who is:
- Under 16 years old
- Under 20 years old if they’re enrolled in approved education or training
Only one person can receive Child Benefit for each child, but there’s no limit to the number of children you can claim for.
By claiming Child Benefit, you can receive:
- A regular payment for each child, typically every 4 weeks. This is currently £25.60 per week for the eldest or only child and £16.95 per child for additional children.
- National Insurance credits that contribute to your State Pension.
- A National Insurance number for your child, issued before they turn 16 years old without the need for a separate application.
The Previous High Income Child Benefit Charge: Inequities and Challenges
Under the previous system, families with a household income exceeding £50,000 faced the High Income Child Benefit Charge. This charge, at a rate of 1% for each £100 of income above the threshold, often resulted in the complete repayment of benefits by the time the household income reached £60,000. This structure created inequalities between families with a single higher earner and those with dual earners just below the income threshold, leading to criticisms of unfair treatment within the welfare system.
The Reform: Addressing Disparities and Providing Relief
In response to growing concerns, the Government announced comprehensive reforms to the HICBC. A full review is to be undertaken to assess qualification based on household income from April 2026, but from April 2024, key changes are effective which include:
- Threshold Increase
The threshold for High Income Child Benefit tax charge has increased from £50,000, meaning you won’t have to repay any of your Child Benefit until your income reaches £60,000 per year. The Government estimates that this change will prevent 170,000 households from needing to repay. - Salaries above £60,000
Previously, once you earned £60,000, you would lose your Child Benefit entitlement completely. This has increased to £80,000. This adjustment aims to create a more equitable system for families across varying income levels.
However, under the new thresholds, for every £200 of income above £60,000, you need to pay back 1% of the maximum amount of Child Benefit you’re entitled to.
Impact and Opportunities: Maximising Benefits for Families
The revised HICBC presents new opportunities for families to reassess their eligibility for Child Benefit. For those who may have previously opted out due to the repayment implications, the threshold increase and reduced clawback rate may make claiming Child Benefit financially advantageous again, even if you are a higher earner.
Here’s an example for the Tax Year 2024/2025 for a family with two children that has one higher income earner with a salary of £68,000 per annum:
Annual salary: £68,000 (before any deductions for pension, GiftAid etc)
Child benefit (two children): £2,212.60
Tax charge to pay: £885.00
Difference: £1,327.60
Despite the higher income, they could still gain financially from claiming Child Benefit and receiving support towards the costs of raising their children.
Is it worth claiming Child Benefit if I earn over £80,000?
Claiming Child Benefit can still be beneficial even if you earn over £80,000. Although you’ll have to repay it through taxes due to the High Income Child Benefit Charge, claiming Child Benefit ensures you receive National Insurance credits that contribute towards your State Pension. Additionally, if your income fluctuates or falls below £80,000 in the future, you won’t miss out on these credits.
Taking Action: How to Claim Child Benefit
For families considering claiming or backdating Child Benefit, it’s essential to understand the steps involved:
- Eligibility Check
Before making a claim, ensure you meet the eligibility criteria outlined on the government website. Factors such as residency status, child age, and income thresholds may affect your suitability. - Online Application
Visit the Child Benefit section on the gov.uk website and follow the steps to submit your claim. Provide accurate information, including your National Insurance number, bank account details, and information about your child. - Backdating Claims
If you previously opted not to receive Child Benefit but now wish to do so, you can backdate your claim. The process can be initiated through the gov.uk website, as long as you provide accurate information regarding the period you’re retrospectively claiming for.
Be sure to complete any backdated claims by 5th July 2024, as there is a three-month deadline for retrospective claims.
How an Accountant Can Help
Navigating the complexities of the High Income Child Benefit Charge (HICBC) and maximising Child Benefit entitlements can be daunting. Seeking guidance from a qualified accountant can provide invaluable assistance. An accountant offers personalised advice tailored to your financial situation, helping you understand the system and make informed decisions. We can also assist with tax planning strategies to optimise your finances.
By working with an accountant, you can gain peace of mind knowing your family’s welfare is handled with expertise. Whether you’re considering claiming Child Benefit or reassessing eligibility, consulting with an accountant can streamline the process and maximise support.
How CRM can help
We don’t just offer accounting services; we’re your dedicated allies in managing your family’s finances. With our team of seasoned professionals, personalised approach, and proactive mindset, we provide comprehensive assistance tailored to optimising your financial well-being.
Whether you’re reassessing eligibility for Child Benefit, navigating tax complexities, or seeking strategic financial planning, we’re here to support you across all aspects of your financial life.
Next steps
For advice or assistance with navigating Child Benefit processes or maximising your entitlements, you can count on CRM. To get in touch, complete our contact form or give us a call at 01865 379272. We’re here to simplify your financial journey.
