Child Benefit and National Insurance Credits - a brief update from HMRC - 18th January 2024

National Insurance Credits for parents and carers for tax years where they have not claimed Child Benefit.

Where an individual or their partner receives Child Benefit and one of them has income over £50,000 a year, the High Income Child Benefit tax charge applies.

The High Income Child Benefit Charge was introduced from 7 January 2013. It works by clawing back an equivalent sum to all the Child Benefit paid if that person’s income is above £60,000 and a tapered proportion of it if the person’s income is between £50,000 and £60,000.

The difficulty is that those affected have various options about what to do, and the consequences of these options are not obvious. The options are to:

• not claim Child Benefit at all;

• claim Child Benefit, but not receive payment of it;

• receive Child Benefit but, in effect, pay some or all of it back through the High Income Child Benefit Charge tax charge.

Registering a claim for Child Benefit, but then opting not to receive it, is the only way to avoid paying the High Income Child Benefit Charge and its associated administration, while preserving national insurance entitlements.

It is not always appreciated that Child Benefit has important links with the wider national insurance system by, for example, providing the Child Benefit claimant with national insurance credits until the child is 12, which can help fill gaps in their national insurance record for State Pension if they are not working.

As a result, some people avoid the complexities of tax reporting by not claiming Child Benefit. However, this can mean they lose out on national insurance credits towards the State Pension.

Back in 2019, the (now defunct) Office for Tax Simplification suggested “The government should consider the potential for enabling national insurance credits to be restored to those people who have lost out through not claiming Child Benefit.”

It recommended that the Government review the administrative arrangements involved to improve the situation, and also look at the position of those who have lost out since 2013.

Also, where the working parent of a couple has registered to receive Child Benefit rather than their non-working partner, the non-working parent does not receive any national insurance credits and may therefore lose entitlement to future State Pension. National insurance credits can be transferred between parents of children under the age of 12 using HMRC form CF411A. However, backdating is currently effectively limited to a single tax year. 

On 28 April 2023, the Government announced it would legislate to introduce a route for people to apply for National Insurance Credits for parents and carers for tax years where they have not claimed Child Benefit, to ensure that people do not miss out on their State Pension entitlement.

The Government has now published an update, saying that individuals will be able to claim this Credit from April 2026. The Government says that eligibility for the Credit will be closely based on Child Benefit eligibility criteria. Transitional arrangements will ensure those affected since 2013 are still able to claim. The credit will add qualifying years of National Insurance where eligible, which will support future State Pension eligibility.

Going forward, applications will be available for six years following the relevant tax year. The Government says that it will bring forward secondary legislation as soon as possible.

Source: Techlink Professional