Child benefit tax trap explained: How parents can end up paying 60% rate on their pay rise

The Child Benefit Tax Trap (HICBC) is a tax that affects families with children who earn more than £50,270 per year. This tax trap occurs when parents receive child benefit payments and then have to pay 60% of their pay rise in National Insurance contributions (NICs).

The HICBC was introduced in 2013 as a way to reduce the overall cost of child benefit to the government. However, it has faced criticism for its complexity and the extra burden it places on parents. The tax trap can result in families with children earning more than £50,270 per year losing out on thousands of pounds in child benefit payments.

For example, if a parent earns £60,000 per year and receives child benefit payments of £1,389 per month, they would be subject to the HICBC. If their pay rise is £5,000 per year, they would have to pay 60% of that amount in NICs, which would be £3,000. This means that their child benefit payments would be reduced by £1,273 per month, leaving them with only £111 per month.

The HICBC has also been criticized for its impact on families who are already struggling financially. The reduction in child benefit payments can make it difficult for parents to afford essential items such as food, clothing, and housing.

It is unclear whether the HICBC will be axed at the Budget. However, there have been calls for the tax trap to be abolished or reformed to reduce its impact on families with children.