One of the problems of doing this job is that sometimes we make the assumption that people know more about their situations than they actually do.
I have written before about the number of higher rate taxpayers who fail to reclaim the higher rate tax relief on pension contributions that they are entitled to, yet still I am speaking to people who look blankly when I ask if they have reclaimed this relief having fully expected them to say “Oh yes” in a “Of course I have, you blithering idiot. Why are you asking me such a stupid question?” kind of way.
Next on this list of misplaced knowledge assumption appears to be Child Benefit.
One of the noticeable parts of the last Budget (and, believe me, there weren’t many) was the omission of any kind of announcement that the threshold for reduction in Child Benefit was increasing.
Just before I lose you completely, let me elaborate.
In 2013, as an appeasement to the majority of voters, the Government decided that high income couples weren’t deserving of the full amount of Child Benefit (assuming, of course they had a child or children). For the purpose of this exercise, high income meant a couple where at least one partner earned over £50,000*.
If one of the couple earned more than £50,000 the Child Benefit they claimed was reduced on a straight line basis until it fell to nothing where one of the couple earned £60,000.
The fact that this threshold hasn’t been increased in the 4 years since its introduction means more and more people are being caught by this charge. A near identical parallel is the Benefit In Kind threshold which has steadfastly remained at £8,500 a year (if you earn more than this your employer must advise HMRC of any benefits in kind you receive such as a company car, private medical insurance, subsidised loan etc.) meaning virtually everyone is now caught.
Not moving the threshold for Child Benefit means more and more people will not only come into the net by virtue of earning the £50000 lower limit, but many people will also exceed the upper limit. And here comes the real problem.
Any right minded person is going to think to themselves “What is the point of claiming a benefit that I know is going to be completely clawed back by HMRC?” And if that was solely the case, they would be right. However, life just isn’t that simple.
Claiming Child Benefit means the person receiving the money will also get a NI credit that will count towards their State Pension entitlement and, potentially, other State benefits that require a NI history to be paid in full. The recipient can have a maximum of 12 years of NI credit towards their State Pension from child Benefit which could be the difference between getting the full amount and not.
The other consequence of not claiming Child Benefit is that the child won’t get a NI number. Hardly the end of the world, until little Johnny comes home from his first part-time job interview that you have been telling him to do for ages as an alternative to spending all his time in his room on his Playstation, only to tell you that he would have got he job but he didn’t have a NI number!
The moral of the story? Claim Child Benefit even if you know it will be entirely repaid. In fact, HMRC have recognised this by allowing you to tick a box on the Child Benefit Claim Form that says “Don’t bother paying me the money, just give me the NI credits” – I paraphrase.
And then there is the interaction of salary exchange and Child Benefit. But I think you’ve suffered enough so far, so if you want to know more ask your usual Richmond House consultant or email me at email@example.com
*Not to be confused with higher earners for pension purposes, where the threshold might be £110,000 or it might be £150,000.
Peter Murphy Dip PFS
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