With the tax return deadline having just passed, some parents may not have realised they need to repay some or all of their child benefit.
This is more specifically those parents who received a pay rise between April 2018 and April 2019 – taking their earnings above £50,000.
Parents not normally required to submit tax returns are being urged to check if they need to repay some or all of their child benefit in the final week of January.
New HMRC figures obtained by NFU Mutual show that the government collected £1.65bn from the High Income Child Benefit Tax Charge (HICBC) between its introduction in January 2013 and the 2016/17 tax year.
A further £3.51bn has been saved from parents opting out of receiving child benefit, with 279,000 families giving the taxman £345m in 2016/17.
Many families with incomes over £60,000 are opting out of receiving child benefit altogether, with more than half a million cancelling by August 2018.
If at least one earner in a household has an income of more than £50,000, that household must repay some of its child benefit.
For every £100 of income over £50,000, 1% of the child benefit must be repaid, so those with an income of £60,000 and more are required to repay it all through the tax charge.
Individuals who need to pay the charge who are employed, and normally pay their tax through Pay As You Earn (PAYE), will need to submit a self-assessment tax return before the 31st January deadline.
Latest figures suggest this tax charge will affect 1.4 million families in 2019/20, but paying more money into your pension has the potential to save you thousands in tax.
Failure to get this right can be costly.
HMRC has already issued nearly £15million in fines for failing to notify them, although they have paid £1.8m back to families following a review. This comes to 97,475 penalty assessments to 37,406 people.
The HMRC paid out £12.17bn in child benefit before the High Income Child Benefit Charge was introduced in 2012/13.
The bill dropped to £11.4bn for 2013/14 after it was introduced, and has not climbed higher than £11.68bn since. In 2018/19 the government paid out £11.55bn.
However, an advantage of child benefit that should not be ignored is that – until the child is 12 – it qualifies the stay-at-home parent for National Insurance credits which count towards the State pension entitlement.
One way to save your family money and reduce the risk of this charge is to pay more into your pension pot.
For example, if the top earner in a family with three children earned £60,000, they could save £4,500 a year in tax by paying £8,000 into their pension.
The £2,000 tax relief on top of the £8,000 would take their taxable earnings down to £50,000. Not only would they save £2,500 from the child benefit charge, but they would also take their income below the 40% tax charge.
For a family with three children, this would result in an extra £10,000 in their pension pot at the cost of just £3,500, with a total of £4,500 saved in tax.