UK Workers Face Overpayment Issues with New Child Benefit System

The launch of the new PAYE system by the UK’s HM Revenue and Customs (HMRC) in October 2025 has created significant challenges for thousands of workers with fluctuating incomes. The system is meant to streamline the repayment process for the High Income Child Benefit Charge (HICBC), impacting approximately 440,000 individuals. However, it has inadvertently led to potential overpayment issues for commission-based employees, bonus earners, and those with variable salaries.

The fundamental concern lies in how PAYE deductions are calculated. These deductions are based on estimated annual income rather than actual earnings, which can lead to discrepancies for employees whose income varies throughout the year. As stated in HMRC’s tax guidance, “PAYE HICBC deductions are based on estimated annual income, so if your income fluctuates, you may be over- or undercharged until HMRC reconciles your actual year-end income.” Consequently, many workers may find themselves repaying more than they owe for several months before any adjustments are made.

The HICBC applies to any individual earning over £60,000 annually who receives child benefit. For every £200 earned above this threshold, families are required to repay 1% of their child benefit, with full repayment necessary once income reaches £80,000. This can lead to substantial deductions for families, particularly those receiving the standard child benefit amount of £1,331 annually. A typical family could see monthly repayments exceeding £225, potentially totaling over £2,700 throughout the 2025/26 tax year.

For workers transitioning from self-assessment to PAYE, the situation may become even more complicated. According to the Institute of Chartered Accountants in England and Wales, “Taxpayers who need to pay HICBC for both the 2024/25 and 2025/26 tax years may end up with two sets of HICBC charges in one year’s PAYE code.” This scenario particularly affects those who filed their 2024/25 tax return before choosing to switch to PAYE.

Professionals in sales, estate agents, and others who earn significant commissions face unique hurdles. Their base salary may be below the £60,000 threshold, but substantial bonuses can push total earnings above the limit. Tax advisers clarify that “it applies to total adjusted net income, including bonuses, so if these raise your income above the threshold, the charge still applies through PAYE.”

Workers on fixed-term or part-year contracts may also encounter similar issues. Tax experts caution that “if you’re employed only part of the year, you may be overcharged unless you update your income estimate or file a reconciliation after the year ends.” Those opting into PAYE midway through the tax year may experience compressed repayment schedules, with the annual charge distributed over fewer months, leading to higher monthly deductions.

Tax professionals recommend that individuals with variable income carefully evaluate whether the PAYE system is appropriate for their situation. For those with significant bonuses, freelance income, or rental properties, self-assessment may provide greater control and faster corrections. Workers can choose to pay the charge through self-assessment instead of PAYE, as long as they register before January 31 following the tax year. This allows for a more accurate calculation based on actual annual income rather than estimates.

Another strategy includes increasing pension contributions or charitable donations to reduce adjusted net income below the £60,000 threshold, thus avoiding the HICBC altogether.

Looking ahead, HMRC anticipates that the new system will incur costs of £25 million over four years starting from 2026-27, likely due to heightened administrative requirements related to overpayment reconciliations and taxpayer inquiries. The child benefit program currently supports families with £26.05 weekly for the first child and £17.25 for additional children, amounting to a total of £2,252 annually for a two-child family. As incomes rise, higher earners will gradually repay these benefits.

Financial advisers emphasize the importance of continuing to claim child benefits, even if repayments are necessary. Registration provides essential National Insurance credits, which contribute to State Pension entitlements. This ensures that families remain eligible for benefits that can significantly impact their financial stability.