Child Benefit has been around since the 1970s. It got complicated when the High Income Child Benefit Charge (“HICBC”) was introduced at the start of 2013. This tax charge applies if you or your partner (not necessarily spouse or civil partner) receive Child Benefit, and either of you has income of more than £50,000. The HICBC recovers an increasing proportion of Child Benefit if the income is over £50,000, and all of it if the income is over £60,000.
People have sometimes overlooked telling HMRC of their liability to HICBC and have been charged interest and penalties for their failure: for that reason, if you know for sure that any Child Benefit is going to be recovered in full as a HICBC, you might conclude that it’s easier to forgo registering for it in the first place. It does, after all, save the faff of completing a multi-page form CH2 at a time when, frankly, filling out government forms may not be at the top of your to-do list.
Easier, but not always wise.
What’s not as widely known as it might be is that Child Benefit has two other interactions with the National Insurance system.
- The first (admittedly rather long-term in its effect) is that it gets the infant’s existence recorded onto the National Insurance system and ensures that he or she is automatically allocated a National Insurance number on reaching age 16.
- The second (actually even longer-term in its effect but rather more important financially) is that a person who is awarded Child Benefit automatically gets National Insurance credits (relevant to establishing an entitlement to State Pension) until the child turns 12.
Both of these benefits apply even if Child Benefit is fully recovered as HICBC or not actually paid at all. All that is required is that you register for and are awarded Child Benefit. Having registered, you can, if you know that any Child Benefit will be recovered in full by a HICBC, opt not to receive it.
It’s also important that the right person registers for Child Benefit. It’s only the person who is awarded Child Benefit who gets the National Insurance credits. So if one partner in a couple is already paying National Insurance Contributions and the other isn’t, it’s the one who is not paying Contributions who should register for Child Benefit.
The effects of losing out on State Pension, though long-deferred, can be substantial. It’s been calculated that over a retirement period of 20 years, even one year’s missing contributions can cost close to £5,000 in reduced State Pension.
And, despite the competing attractions of parenthood, do try to find the time to do it sooner rather than later. Claiming can be back-dated only a maximum of three months.