Thousands of better-off parents who opted out of receiving child benefit because they had to pay the high income child benefit charge (HICBC) could now be eligible to claim, if they experience a drop in income due to the coronavirus emergency
Royal London, the mutual insurer, is urging working parents who have previously stopped claiming child benefit because their earnings took them above the threshold for the HICBC, but have subsequently suffered a loss of income, to reclaim the benefit.
Anyone earning £60,000 or slightly more who has stopped claiming child benefit, but then loses 20% or more of their income under the government’s job retention scheme, would find their income falls to £50,000 or below and they are once again eligible to claim without being liable for the HICBC.
Parents earning under £60,000 but more than £50,000 after a drop in income could also claim child benefit, but would still have to pay a proportion back through the charge in their next tax return. Those who anticipate a drop in income this tax year to below the threshold might also want to start claiming again now, in advance of their income falling, if they need help with living costs now.
For the new tax year 2020/21, the amount parents can claim will rise to £21.05 a week for a first child and £13.95 a week per child for subsequent children – a rise of £32 a year to £1,820, up from £1,788 a year in the previous tax year, for a family with two children under 16.
Becky O’Connor, personal finance specialist at Royal London, said: 'Thousands of parents who had written off child benefit because of the HICBC may find they can claim it again without having to pay the charge, as a result of falls in income.
‘Child benefit is a valuable source of extra help in these difficult times and we are urging parents who had abandoned it but have recently suffered a drop in income to sign up again to receive it.’
However, Robert Salter, an employment and expatriate tax service director at Blick Rothenberg, pointed out it is only possible to claim child benefit retrospectively for a period of three months – so people need to claim now (or in the near future), of they could lose money the family is entitled to.
Whilst furloughed salaries and payments under the government’s coronavirus self-employed support scheme would be considered income for child benefit purposes (along with regular salary, self-employed profits, letting income and the like), many families will still have the highest earner having significantly lower incomes in 2020/21 than has previously been the case, he pointed out.
Salter said: ‘Some families might be tempted to wait for a few months, to see how long the coronavirus lockdown lasts and get a better understanding of what their income could be for 2020/21. But it is only possible to claim child benefit retrospectively for a maximum period of three months. So, unless they are careful, many families could lose money they are validly entitled to needlessly.
‘If the position is unclear, claim the child benefit now – if one’s income subsequently is higher than £60,000 for the year, one can always settle the position via filing a tax return and paying the HICBC.’
HICBC was introduced in 2013, and the Institute for Fiscal Studies estimates that since then one million families have lost their full entitlement to child benefit and 1.4m in total have been affected by the charge.
In households with children under 16 in receipt of child benefit, where one person earns more than £60,000, the charge - equal to the whole benefit received – must be paid in full, effectively cancelling out any benefit from claiming and introducing the need to file self-assessment tax returns to earners who are otherwise PAYE.
If one person earns between £50,000 and £60,000, a proportion of any child benefit received must be paid back via a self-assessment tax return – so many earners within this income band have also decided that the HICBC means it is not worth bothering claiming child benefit for their family. For every £100 earned above £50,000, 1% of the child benefit received is effectively withdrawn through the charge.
By Pat Sweet