How to navigate the child-benefit maze

The child benefit system is infernally complicated and rife with potential pitfalls.

Woman with a crying baby
Mothers with young children often miss out on National Insurance credits
(Image credit: © Getty Images/iStockphoto)

Get it wrong when filling in the paperwork to claim child benefit and you could face several problems. You might have to fill in a self-assessment tax return in order to hand back part of your child benefit, or you could end up with a diminished state pension. But don’t assume the easiest option is simply not to claim the money instead. That too could have long-term consequences for your finances.

In January 2013 the government introduced the High Income Child Benefit Charge (HICBC). Anyone, or their partner, who gets child benefit and earns over £50,000 a year must hand back some of the money. Once you earn £50,000 a year child benefit is withdrawn at a rate of 1% for every £100 you earn over that threshold. So if you, or your partner, earn more than £60,000 you aren’t entitled to any child benefit at all.

A classic tax faff

The problem is rather than simply pay you less child benefit, the government hands out the same amount of child benefit, but expects you to pay back what you aren’t entitled to. This means filling in a self-assessment tax return in order to state how much child benefit you have received, how much you earn and how much you need to hand back. A classic tax faff if ever there was one.

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As a result, many higher-earning families have simply stopped bothering to claim child benefit so they don’t have to go through the hassle of paying it back. The problem is that this can have a significant impact on your state pension if one of you isn’t working full time.

When you give up work to look after children aged under 12 you are entitled to National Insurance credits so that you continue to build up the amount of state pension you will receive despite being out of the workforce. These credits are triggered by claiming child benefit. If you don’t claim you won’t get the credits and, as a result, you may end up with a smaller state pension.

The simple way around this if your household earns too much to receive child benefit is to fill in the claim form, but tick the box to say you don’t actually want to receive the money. This will mean you still get the National Insurance credits, but don’t have the hassle of paying back child benefit that you are not entitled to.

However, when you are filling in the child benefit forms make sure you don’t fall into another trap: registering in the wrong name. The problem arises when child benefit is claimed by the parent still in work rather than the parent at home with the child. If this happens, the latter, typically mothers with young children, can miss out on those all-important National Insurance credits. So make sure you claim child benefit in the name of the parent who is not working.

Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.