Parents claiming Child Benefit have been warned that having a salary under £60,000 won't necessarily protect them from the High Income Child Benefit Charge. The warning comes from Thomas Drury, co-founder and director of The Investors Centre, a broker review and comparison platform.
Child Benefit is a tax-free financial support from the Government for parents or guardians of a child under 16, or under 20 if they stay in approved education or training, according to GOV.UK. It's worth £27.05 a week – or £1,406.60 a year – for the eldest or only child and £17.90 a week for each additional child.
How adjusted net income can push you over the threshold
The benefit can be reduced or lost entirely if the claimant or their partner's adjusted net income rises above a certain level. HMRC's calculation is based on adjusted net income, which includes salary, taxable benefits like a company car or private medical insurance, and income from savings, shares, property, and pensions.
“The biggest misunderstanding is that people see the £60,000 threshold and compare it directly with the salary shown on their payslip,” Mr Drury said. “HMRC looks at adjusted net income, which is a much broader figure. Someone earning £59,000 could still cross the line after receiving a bonus, savings interest, rental income or a taxable workplace benefit.”
What counts towards adjusted net income
Adjusted net income is the total taxable income before the Personal Allowance is deducted. It can include employment earnings, taxable job benefits, self-employed profits, most pension income, savings interest, dividends, and some rental income. Certain pension contributions and Gift Aid donations can reduce the final figure.
For example, someone with a salary of £59,000 and a taxable company benefit worth £2,000 could have adjusted net income of £61,000 if they have no deductions, putting them £1,000 over the threshold.
Repayment rates and additional complications
If you or your partner have an adjusted net income above the £60,000 limit, you'll have to pay back 1% of your Child Benefit for every £200 over it. If it's £80,000 or more, you'll have to pay all of the Child Benefit back.
HMRC's guidance notes that adjusted net income includes savings interest and dividends as part of total taxable income. Therefore, interest can affect the Child Benefit calculation even where no separate income tax is ultimately charged thanks to an allowance.
“Tax allowances and the Child Benefit income test do not always work in the way people expect,” Drury explained. “Parents should add together all relevant sources rather than checking only the amount taxed through PAYE. Bank interest, dividends and income from a side business or property could move the final number.”
He urges parents to "check their total adjusted net income before assuming they are safely below £60,000". "A salary, bonus, bank interest and workplace benefits can all form part of the same calculation. Finding out early gives families time to estimate the charge, check eligible deductions and avoid an unexpected HMRC bill later."
