How Child Benefits affects your National Insurance Contributions

You may be familiar with child benefits, however are you and your family claiming this correctly? Every family can claim Child benefit, however since 2013 any household where the earnings are more than £60,000 is classified as having a “high income”, so the income tax charge cancels it out. In this article, Acumen explain the benefits of claiming child benefits and how this can assist with your pension in later life.

Should my family be claiming child benefits?

The advice from HMRC is that if anyone in your household earns more than £60,000, then the income tax charge cancels out the value of the child benefit that is been received. This has led to an increase in the number of people no longer claiming their benefit.

You can see if you are eligible for child benefit by completing the HMRC’s Child Benefit Tax Calculator.

Child Benefits and national insurance credits

If one of the family stays at home to look after the children, you need to consider that by not claiming child benefits you are missing out on obtaining National Insurance Contribution credits. This could amount to quite a substantial loss of State Pension in the future.

To claim a full state pension, you will need 35 years’ worth of NI credits or contributions (this has increased from 30 years) and those without a full record will only be able to claim a reduced pension.

Are you affected by this problem?

You could be putting your full state pension at risk if all of the following apply:

• Your first child was born on or after 1 Jan 2013. (If you have other children who were all older than 12 by January 2013, and you then had another child after 1 Jan 2013, you could also be affected.)
• You are not working, or earn less than £5,824/year (and therefore do not earn National Insurance (NI) credits).
• You do not claim child benefit. Many people now do not bother to claim because the payments are means-tested. If your partner earns more than £50,000/year, child benefit payments are either reduced or stopped completely (depending on how much they earn).

Advice on claiming child benefits

Angela Maher, Managing Director at Acumen, advises: “The advice for clients is that they should either claim child benefit and accept that the tax charge will cancel this out through self-assessment or fill in the claim form at a zero rate. This will ensure that National Insurance is still credited to count towards future State Pension entitlement.”

Angela continues: “To get a full-rate single-tier State Pension, 35 qualifying years are needed (either through contributions or through credits, by those who reached State pension age before April 2016). It is more important than ever to make sure everyone gets every credit that they are entitled to.

“Despite the State Pension having been in the political limelight and not always seen as an important benefit, it still stands that it is really good value for money and everyone needs to make sure they qualify for the maximum possible.”

If you need any advice or assistance with child benefits and how this may affect your national insurance contributions, please contact the team at Acumen Financial Partnership where we would be more than happy to advise the best action for your financial situation.