What are the pros and cons of claiming child benefit as a higher earner? Experts explain

IF you’re a higher earner, you might think it’s not worth claiming child benefit – not least because if you earn a certain amount, you have to pay it back.

But there are still a number of reasons to claim the benefit, even if you think you don’t need the cash or may have to pay some back.

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Child benefit is a four-weekly payment that’s designed to help with the cost of raising a child in the UK.

The benefit is worth £25.60 a week for your eldest child, and then £16.95 a week for any subsequent children.

For a family with two children who qualify, this adds up to £2,212.60 a year. For just one child, you get £1,331.20 a year.

The hitch for higher earners is that if one of the parents in the household earns more than £60,000 a year, you have to start paying some of the benefit back.

Once one of you earns more than £80,000 you have to pay it all back.

This might make it seem like there is no point in claiming child benefit if you’re a higher earner, particularly given the administrative headache of filling in a self-assessment tax return.

But in reality, child benefit is more complex, and there are reasons to claim it even if you won’t be getting any extra cash.

The Sun spoke to three experts to find out why high earners might want to claim child benefit and the pitfalls they need to be aware of.

National Insurance Credits

One of the main arguments for claiming child benefit is that claimants automatically get National Insurance (NI) Credits. 

These count towards your state pension, and you need 35 years where you have paid enough NI through your employment or received an NI credit if you want to get the full amount.

In couples where one person is a higher earner and the other is a stay-at-home parent or works very part time, it is critical the lower earner claims child benefit to receive these credits and protect their retirement.

If the higher earner earns more than £80,000 you can check a box when you apply, which means you’ll get the credits but won’t receive any money and won’t have to pay anything back.

You could also do this if the higher earner was on a salary between £60,000 and £80,000 but you would be missing out on some of the benefit you’re entitled to.

Andrew Gosselin, a chartered public accountant and chief financial strategist at The Calculator Site said: “Regardless of your income level, you must understand the importance of filing Child Benefit.

“Because of the High-Income Child Benefit Charge, many people with higher incomes tend to ignore it, but there’s much more going on behind the scenes. 

“You get NI credits by claiming it, and these credits are essential to your eventual State Pension. This is especially helpful when you’re not working or when your weekly income is less than £123.

“Even while it could currently appear like simply another task to complete, consider it as building the foundation for your financial future.”

If you earn less than £80,000

If the higher earner earns between £60,000 and £80,000, you will have to pay some of the benefit back, but you will still be better off overall.

You pay back 1% of child benefit for every £200 you earn over the threshold. The government has a handy calculator so you can see what you’ll owe.

However, one pitfall is that the higher earner will need to fill out a self-assessment tax return. 

Not only is this an administrative pain if you didn’t already need to do one, but filing late and paying late both mean fines from the taxman, which could wipe out the benefit you received.

If you do choose to apply, make sure you register for self-assessment and take note of all the filing deadlines.

If you want the NI credits, but don’t want to do a tax return, you can apply for the benefit and choose not to receive any money. However, you will be missing out on cash that you’re eligible to receive.

Jack Munday, chartered financial adviser at Saltus said: “For those earning more than £60,000, it’s generally better to claim child benefit and repay the High Income Child Benefit Charge (HICBC) rather than completely opting out.

“There are no ‘pitfalls’ as such, however, the higher earner must complete a self-assessment tax return to pay the HICBC, even if they are employed and typically wouldn’t need to file a tax return. 

“This can be stressful, especially for those unfamiliar with self-assessment, and if the higher earner fails to file their self-assessment tax return on time or accurately report the child benefit received, they could face penalties from HMRC.

Katie Guild, co-founder of Nugget Savings said: “If you make over 60k but below 80k use the HMRC child benefit calculator to work out how much you would have to repay in high-income benefit charges, and if you do need to pay some of the benefit back, put it in a savings account so you know the money is set aside, but you’ll also earn interest from it too!”

If you’re just above the threshold

Another important thing to note about child benefit is that it’s not your salary that decides whether you’re over the threshold and have to repay the charge, it’s your net adjusted income.

This means how much you earn after things like pension contributions and charitable donations are made.

For someone just above the thresholds, you may find that your existing pensions contributions already mean that you don’t need to repay anything.

If you find you are just above the threshold even after you make those deductions, you could choose to pay more into your pension to bring you back below the limit.

This will mean that you continue to get child benefit, whilst also protecting your financial future and boosting your retirement pot. You can also make charitable donations to further reduce your income.

Mr Munday said: “Higher earners can reduce net income – and avoid the charge – by increasing pension contributions, utilising salary sacrifice schemes, or donating to charity through Gift Aid.”

He added that from a financial planning point of view, claiming – even if you do have to pay all or some of the money back through the HICBC – also gives you more flexibility if the government changes the rules.

Mr Gosselin added that it’s sensible to apply sooner rather than later, as you can only backdate a claim by three months, pointing out that it’s always possible to change your mind.

“Even if you decide not to accept the funds immediately, it makes sense to file your claim as soon as possible… You can always change your mind later,” he said.

If you’re going on maternity leave

If you typically earn more than £80,000 but you’re planning to take either maternity or paternity leave, do your sums to see how this will impact your finances that year.

It might well be the case that it pushes you under the threshold for having to pay all the benefit back, and the payments could be a helpful cushion as your income takes a hit.

Ms Guild said: “If you normally earn £80k but are now on maternity leave, which is lower, that might mean you’re now eligible for the full benefit and it would be worth claiming as your earnings in the tax year may drop because of low maternity or paternity pay.”

Transferring NI credits

One little known fact about NI credits is that you can transfer them to someone else who cares for your child.

You might want to do this if, for instance, both parents are working and paying national insurance, and a grandparent is providing childcare.

If you want to do this, you can still opt not to receive any child benefit when applying, so you have the credits but do not need to repay the high income benefit charge.

Ms Guild added: “You can also transfer National Insurance credits to a spouse, partner or grandparents using the CF411A form if certain conditions are met. This could also boost the receiver’s state pension, depending on how often they care for the child.”

Getting an NI number for your child

One final advantage of applying for child benefit is that it means that your child will automatically get issued with a national insurance number when they turn 16.

Gosselin explained: “[This is] a perk that often slips under the radar. This simple step can save you from future admin headaches. Even though the benefits of this might not be glaringly obvious right away, it’s a savvy move that positions your child well for their future financial dealings.”