Tax issues for new and working parents
It can be hard for new parents to keep track of the financial implications of having a baby. There are some issues, however, it can really pay to remember.
Get the most from your tax credits
New parents may be missing out on an average of £495 a year in tax credits because they are reporting their income incorrectly, HMRC has warned.
If you receive statutory maternity, paternity, shared parental or adoption pay, you can deduct up to £100 a week when reporting earnings for tax credits. If your payments come to less than £100 a week, you should deduct for the amount you have received.
It is too late to claim for the current year, but new claimants should be aware of this for the next tax year.
Always claim child benefit
Child benefit is worth nearly £1,800 a year for a family with two children. However, the so-called ‘high income’ tax charge claws the full amount back if just one of the parents earns at least £60,000 a year.
If this clawback applies to you, you can opt out of receiving child benefit to avoid having to register for self-assessment and filling in a tax return. However, you should still register for child benefit even when the full amount is clawed back, otherwise you will lose some valuable benefits.
Filling in the child benefit claim form entitles you to national insurance credits, which provide state pension contributions for a stay-a-home parent until a child is 12. This gives a potential 12 years towards the 35 years of national insurance contributions required to qualify for a full state pension.
Valuable benefits such as these aren’t always easy to find or understand. If you want to make sure you are making the most of every opportunity, please get in touch.