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08 Jul 2024
by Gary Fereday, Kathryn Dooks

The impact of tax on pay: how to help employees understand

There’s a raft of state benefits that your employees may be entitled to and that could have a knock-on effect on their personal finances

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The UK tax landscape has undergone significant changes in 2024, which will impact various aspects of personal finance – particularly when it comes to your people’s pay. The good news is some of the tax changes could be financial opportunities for employees to utilize. But do your people understand what it means for them, and are they taking the best action for their circumstances? 

Recent UK tax changes most relevant to your employees:

  • National insurance contributions (NICs): The main rate of Class 1 NICs for employees reduced from 10% to 8% in April 2024. For the self-employed, the Class 4 NICs dropped from 8% to 6%.
  • Capital gains tax (CGT): The CGT allowance was cut from £6,000 to £3,000 In April 2024. In addition, the higher rate of CGT on residential property was reduced from 28% to 24%, aiming to encourage landlords and second homeowners to sell their properties and potentially make more homes available for first-time buyers. 
  • Dividend allowance: The annual dividend allowance was halved to £500 for the 2024-25 tax year. This is down from £2,000 In 2022-23 and £1,000 In 2023-24 and will affect those who receive dividends outside of tax-efficient accounts like ISAs.
  • Pension lifetime allowance: The pension lifetime allowance was abolished in April 2024. This means there is currently no cap on the total amount you can accumulate in your pension without facing additional tax charges. However, new allowances have been introduced for tax-free lump sums and death benefits.
  • Child benefit and high-income child benefit charge (HICBC): The government increased the amount you can earn before you need to start repaying your child benefit from £50,000 to £60,000. Previously, the benefit had to be repaid entirely when one parent earned more than £60,000. This threshold has now been increased to £80,000.

There’s a reason we left child benefit change to last. We wanted to take the opportunity to showcase examples of nudge’s impartial financial education on the UK child benefit. Here’s a taste of what your people could access to help them navigate important financial moments and milestones like starting a family.

Who can claim child benefit? You can claim child benefit for each child you’re responsible for (you do not have to be their parent), regardless of whether you’re working or have savings. 

You can claim for each child:

  • Under 16
  • Under 20 years and in approved full-time education or training.

If your child starts paid work for 24 hours or more a week and is no longer in approved education or training, your child benefit will stop. The same applies if your child starts an apprenticeship or starts receiving certain benefits.

Payments are tax-free unless you or your partner earn more than £60,000 a year (see below). Find out more about child benefit eligibility on gov.uk.

How much is child benefit? In the current tax year, you can claim:

  • £25.60 per week for your first child
  • £16.95 a week for any further children

That’s more than £1,300 a year if you have one child and almost £900 for subsequent children. 

Child benefit if you earn more than £60,000: If either you or your partner earns over £60,000 a year, you’ll have to start repaying all your child benefit in the form of extra income tax. You'll need to register for and complete a self-assessment tax return to pay back what you owe. You may need to pay penalty fees and interest if you don't file your self-assessment by the deadline (31 October for paper returns and 31 January for online returns). 

How to claim child benefit: You can apply to claim child benefit online at gov.uk and find details of how to apply by post or phone. 

Claim child benefit as soon as your child is born: You’ll have lots of other things to do and remember in the first few weeks, but it’s worth claiming straight away as your child benefit payments can only be backdated three months from the date your application is received.

Why it’s important to claim child benefit: As well as receiving financial help, claiming child benefit can help you or your partner protect your state pension. You normally need 35 qualifying years of national insurance contributions to claim the full state pension. If either of you are off work looking after a child under the age of 12, claiming child benefit means you will automatically receive national insurance credits to fill gaps in your record.

If you don’t claim, you might also miss out on:

  • Other benefits such as guardian’s allowance; and
  • Your child being automatically issued with a national insurance number before their 16th birthday.

Even if you don’t think you’ll be entitled to any child benefit payments because either you or your partner earns over the £80,000, it’s still worth claiming so you don’t miss out on national insurance credits. You or your partner can always opt not to receive the payments – and avoid having to file a self-assessment for this reason but still get the entitlements.

There you have it. With nudge, you can help employees understand recent tax changes, like amendments to UK’s child benefit, so your people will manage change with confidence. Get in touch if you want to find out more about nudge’s global, impartial financial education.

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