My employee owes HMRC £1,800 in child benefit repayments – Can we help them?
The simple answer is yes.
There are two ways to deal with this situation;
- Firstly, have the liability “coded out” – this is where HMRC will change the employees tax code and collect any amounts due through PAYE. This should be available in most cases.
- Secondly, you could provide an employee loan that can be repaid out of the employees net salary over a period of time, say 6 or 12 months. A salary sacrifice type arrangement. There is no benefit in kind (so no additional tax) provided that the loan is less than £10,000 (£5,000 for directors).
Both scenarios result in the same answer the first one is simply funded by HMRC and not the employer.
What is Child Benefit?
You can apply for Child Benefit if you’re responsible for bringing up a child who is:
- under 16
- under 20 if they stay in approved education or training
By claiming Child Benefit:
- you can get National Insurance credits which count towards your State Pension
- your child will automatically get a National Insurance number when they’re 16 years old
If you choose not to get Child Benefit payments, you should still fill in and send off the claim form.
How much is Child Benefit?
A family with two children can claim nearly £1,800 a year in Child Benefit.
In the 2019/20 tax year, you can claim:
- £20.70 per week for your first child
- £13.70 a week for each additional child.
That’s more than £1,000 a year if you have one child and an extra £700 per year for second and further children.
If you or your partner earn over £50,000
If you or your partner earns over £50,000 a year, you can still claim Child Benefit. However, you’ll start to pay back some of it back in extra Income Tax.
Once you earn £60,000 you lose all of your benefit through tax.
It can be worth continuing to claim Child Benefit and paying it back, depending on your circumstances as claiming Child Benefit will help you protect your State Pension.
You should fill in a Self Assessment tax return each tax year and pay what you owe. However if you have not and have received a letter from HMRC to demand a repayment, simply contact them. Only the tax payer can do this unless they have appointed an agent to communicate with HMRC on their behalf.