Child benefit or parental penalties?
Most people wouldn't consider £50K a year of gross income particularly high. If you've got children and are paying rent or a mortgage, council tax, energy bills, food and other household expenses – what remains after tax doesn't go far.
Even HMRC doesn't apply the upper tax bracket until your earnings reach £50,270 a year. But as soon as one individual in your household earns more than £50K in a year it will affect your child benefit payments.
If you get a bonus and it tips your total earnings over that critical £50K, you can expect a letter from HMRC, sometime after your tax return / P60 has been processed, pointing out that you will need to repay part or in some cases all of your child benefit payments.
The nitty gritty
The rules say that as soon as any individual in your household's annual earnings tip over that £50K threshold a sliding scale rising from 1% at £50K and rising to 100% at £60K. That means that you could end up repaying anything from £11 to over £1,100 if you have only one child, and up to £750 for each additional child in your household.
If only one partner is working it still applies – but, if both partners are working and each earning less than £50K it doesn't apply. It's not based on joint earnings – so you could both be earning £49,500 per annum and it won't apply.
If you're a step-parent, it still applies to the children in your household if you contribute to the child's upbringing. It also applies if someone else gets child benefit for a child living with you if they contribute at least an equal amount to maintaining the child.
It's based on gross earnings, before tax and other deductions too, so if you get a significant pay rise that takes you into the 40% tax bracket, you lose 20% of your income in tax AND a substantial chunk out of your child benefits.
Everyone knows it's unfair, but at the time of writing there is no sign of this being changed.
No loopholes
We advise that you should claim child benefit if you're entitled to it, but keep a careful eye on your total annual income, before tax and deductions.
With inflation running at 10-15% employers are pushed to give pay rises. This means that more and more people fall into the over £50K p.a. bracket – and many have no idea that they're getting close. That generous end of year bonus of £2-3,000 can end up costing you money!
There are no ways around this and you can't avoid it, as soon as your P60 shows an income in excess of £50K – expect a letter!