'I fell foul of child benefit rules and had to repay £2,500'

A mum of two didn’t think she was in danger of breaching the high-income threshold – until an unwelcome bill landed on her doormat.

“I registered for child benefit for our twin boys while on maternity leave. At the time, neither my nor my husband’s income reached the ‘high-income charge’ threshold of £50,000. So it felt straightforward to apply and claim the money. We got just over £36 a week, which went some way to keeping the boys in nappies, endless snacks, or clothes they grew out of in a matter of months.

“I sort of forgot about it, to be honest – my income went down after going part-time when I returned from maternity leave, so I never felt I had to worry about hitting that £50,000 threshold and no longer being eligible.

“However, what I didn’t factor in was that my husband’s income fluctuates due to shifts and overtime, meaning he can earn very different amounts each month. It’s the same for anyone who earns commission or big bonuses at work. So we didn’t realise he’d gone over the threshold for not one, but two previous tax years – until he got a very unwelcome letter from the Government asking for the child benefit back.

“As anyone knows, an unexpected bill is never appreciated, but least of all when you’re trying to pay for two small children in childcare. And there is no option but to repay. So we had to repay two years of child benefit in two lump sums of over £1,000 each – not money that many people have to hand.

“Scrabbling to find that much in the budget was really tricky – especially when you’re no longer getting the child benefit payments. It’s a double hit, of your income falling as a result of no longer getting child benefit, but also of having to find extra money to pay back the benefit you weren’t entitled to.

“My advice would be: make sure you’re fully aware of how much each of you earn if you’re in a couple. You might not go over the joint threshold, but if one of you goes over the individual, you’ll have to pay it back. And don’t put your head in the sand – the taxman will come for you all the same!”

How the high-income charge works

If either you or your partner earns over £50,099, you’ll lose some of the child benefit on a sliding scale until one of you earns £60,000 – at which point you’re not eligible for any child benefit.

You re-pay the benefit at a rate of 1% of the benefit amount for every £100 you earn over that £50,000 threshold. Sounds confusing? It is. It means if you earn £55,000, you lose 50% of the benefit – because you’re £5,000 over the limit, and at a rate of 1% per £100, that equals 50%. The exact amount of money you lose depends on whether you’re claiming for one or two children.

The frustrating factor for many parents is that the high-income charge looks at each parent’s income, and not the household income. So, two working parents could each earn £50,000 and get the full child benefit, while a family where one parent doesn’t work and another earns £60,000 would get none of the benefit – even though their household income is far lower.

Be sure you know how much your partner earns

Families often find themselves with a hefty repayment bill when one person claims the child benefit, but isn’t fully aware how much the other person earns. If you don’t have combined finances as a couple it’s easy not to know exactly how much a partner earns, particularly if they don’t have a reliable income.

But to avoid getting an unwanted bill, you need to be clear about their earnings. Set a calendar reminder to check every six months that your partner is still eligible. Or make sure the higher earner of the couple is claiming child benefit, so it’s more likely to be at the forefront of their mind if they earn more one year.

Don’t forget about the downside of pay rises

A pay rise is usually cause for celebration. But don’t forget that any change to your income could tip you into being ineligible for the full child benefit. So, once you’ve downed the champagne you’ll need to come back to reality with a bump by working out if you’re now over that £50,000 threshold.

If your earnings fall between £50,000 and £60,000, there’s a convoluted system for how the child benefit is handled. You can claim the full child benefit and then repay the amount you’re not eligible for in your self-assessment tax return at the end of the year. Annoyingly, there isn’t a way to just get paid the amount of benefit you’re owed.

It will be a judgement call for each family as to whether the amount of money they’re getting in benefit is worth the hassle of registering and filing a tax return and repaying the benefit at the end of the year. But if you do choose this route, many people can at least spread the deductions over the whole tax year, as HMRC will issue you a special tax code which will take back the child benefit from your salary every month.

Pay into a pension to dodge the benefit cut

Your earnings figure that’s taken into account for child benefit purposes is what’s called your ‘adjusted net income’. What this complicated Government jargon refers to is your earnings minus any money you pay into your pension or gift aid donations. You can use this calculator to help you work it out.

So if you’ve just tipped over the limit, you could put some money in your pension and still claim the full benefit. For example, if you earn £51,000 and put £1,000 in your pension, you’ll be back under the limit and be entitled to the full benefit. You’ll need to work out what that means for your finances – but if you can afford that pension contribution, it means you could boost your income.

Claim the benefit but not the actual money

There’s now a way to claim the benefit but not get the money. This feels a little odd, but claiming child benefit gives you National Insurance credits towards your state pension, which is a must-have for any non-working parents.

It also means your child will automatically get their National Insurance card at 16, rather than having to apply for it. This option is likely best for those where one parent earns over the threshold and the other doesn’t work – and therefore needs those National Insurance credits.