Urgent warning as more than one million families lose child benefits due to ‘stealth tax’ – are you affected?
MORE than a million parents are losing out on crucial government payments worth more than a £1,000 a year because of a stealth tax.
The number of households receiving child benefit plummeted to a record low in 2022, the latest stats from HMRC show.
It’s thought many have stopped claiming over fears they will be hit with the High Income Child Benefit Charge.
This tax means parents have to repay some or all of the benefit if they or their partner earn more than £50,000 a year.
The cap on earnings was introduced in 2013 and hasn’t moved since, meaning more families have become liable for the charge.
If the threshold had moved in line with inflation it would be worth £65,000, according to calculations by investment firm AJ Bell.
In August 2022, 7.7 million families claimed child benefit, a fall of 43,000 from a year earlier, and down from 8million in 2013.
Sarah Coles, head of personal finance, at financial provider Hargreaves Lansdown, said: “The stealthy creep of the High Income Child Benefit tax charge has forced over a million children out of receiving child benefit since 2013 and sent the number of families claiming to a record low.
“The fact the threshold hasn’t moved in a decade means more and more families are being hit by the charge, including thousands of basic rate taxpayers.
“This isn’t just costing families money now, but could end up taking a serious toll in retirement too.”
At the same time, a lack of awareness over child benefit means many parents who could claim are failing to do so.
In 2012, 97% of eligible children were claimed for but last year this figure dropped to a new low of 89%, according to HMRC data.
Parents with younger kids have a particularly low take-up rate, with one in four eligible families of children under one not claiming and one in five under twos also missing out.
HMRC said the pandemic could be behind the lower rates of claims among these families.
Contact with professionals dropped during lockdown while official processes, such as forms being circulated in hospitals, were disrupted.
An HMRC spokesperson said: “Child benefit provides important financial support for millions of UK families and we encourage all families to claim it.
“Those on higher incomes who may be affected by the tax charge can find out all the information they need and follow a simple process at Gov.UK.”
How much is child benefit worth?
There are two child benefit rates, one for the eldest child and another for each further child or children.
The current rate for your eldest or only child is £24 a week working out at £1,248 a year.
For every additional child payments are £15.90 a week or £826.80 a year.
For eligible families with two children, the payment is worth £2074.80 a year.
Who can claim?
Almost all parents in the UK can claim child benefit if they look after anyone under 16 or under 20 and in approved education or training.
Only one person in the household can get child benefit, but there is no limit to how many children you can claim for.
After anyone earns more than £50,000, they have to start repaying the Child Benefit on a sliding scale.
This means that a parent or a partner who earns £60,000 will need to repay the entire entitlement.
However, you can still claim and opt out of receiving payments to build up National Insurance contributions which are used to calculate your State Pension entitlement in retirement.
You need 35 years of NI contributions for a full state pension.
Those who take time away from work to look after children could have years where they don’t pay enough National Insurance to count towards the state pension.
This is why it’s important to claim child benefit even if you opt out of payments.
How do I apply?
You need to apply for child benefit which you can do online through gov.uk.
Only one person can get the benefit for the child or children though so you’ll have to decide which parent will get it.
What is the High Income Child Benefit Charge?
The high income child benefit tax charge hits families where a parent is earning £50,000 or more.
It means you pay back 1% of your child benefit for every £100 of income over this amount.
Once you reach £60,000 of income you have to repay the full amount.
The reduction applies when just one parent or guardian earns more than the threshold, and not on combined household earnings.
This means that two parents could earn £49,999 and dodge the charge.
But if one parent earns £55,000 and another £20,000 they would have to pay the charge despite a far lower combined income.
Parents who have been caught out by the complicated rules and have received repayment bills for thousands of pounds.
It’s up to parents to notify HMRC if they are liable for the charge and they must file a self-assessment tax return to pay it.
It’s feared that by 2025 2.5million families will lose out on child benefits payments, due to the charge.