HMRC's PAYE Child Benefit System Goes Live – Why Fluctuating Earners Face Overpayment Nightmare in 2025/26

Thousands of UK workers with variable incomes are facing unexpected overpayment problems after HMRC launched its new PAYE system for repaying the High Income Child Benefit Charge (HICBC) in October 2025.

Designed to simplify tax processes for around 440,000 individuals liable for the charge, the digital service has instead created headaches for commission-based workers, bonus earners, and those with fluctuating salaries. The core issue: PAYE deductions are calculated based on estimated annual income rather than actual earnings.

How the System Creates Overpayment Traps

The new PAYE-based system automatically deducts the High Income Child Benefit Charge directly from monthly salaries. However, workers whose income varies throughout the year face significant pitfalls.

'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,' according to published tax guidance. This means employees could be paying back more than they owe for months before receiving a correction.

The charge applies to anyone earning over £60,000 annually who receives child benefit. For every £200 earned above this threshold, families must repay 1% of their child benefit, with full repayment required at £80,000.

Double Deduction Danger for 2025/26

Workers transitioning from self-assessment to PAYE face an even more severe issue: double deductions in a single tax year.

'Taxpayers who need to pay HICBC for both 2024/25 and 2025/26 may end up with two sets of HICBC charges in one year's PAYE code,' warned the Institute of Chartered Accountants in England and Wales. This particularly affects those who filed their 2024/25 tax return before opting into PAYE.

For a typical family receiving £1,331 annually in child benefit, this could mean monthly deductions of £225 or more throughout 2025/26—potentially over £2,700 taken from salaries before year-end reconciliation.

Commission Workers Hit Hardest

Sales professionals, estate agents, and others earning significant commissions face specific challenges. Their base salary may fall below the £60,000 threshold, but substantial bonuses or commission payments could push total income over the limit.

'It applies to total adjusted net income, including bonuses, so if these raise your income above the threshold, the charge still applies through PAYE,' guidance from tax advisers notes.

Workers on fixed-term or part-year contracts face similar issues. '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,' warned tax experts.

Mid-Year Opt-In Creates Immediate Pain

Those choosing to opt into PAYE partway through the tax year face compressed repayment schedules. The system spreads the annual charge over remaining months, resulting in temporarily higher deductions.

A worker opting in during October 2025 would have just six months to repay the full year's charge—doubling the monthly impact on take-home pay compared to someone enrolled from April.

What Fluctuating Earners Should Do

Tax professionals recommend that workers with variable income carefully consider whether the PAYE system suits their circumstances. Those with substantial bonuses, freelance side incomes, or rental properties may find self-assessment offers more control and quicker corrections.

Workers can still choose to pay the charge through self-assessment rather than PAYE, provided they register before 31 January following the tax year. This allows for accurate calculation based on actual annual income rather than estimates.

Another option is to increase pension contributions or charitable Gift Aid donations to reduce adjusted net income below the £60,000 threshold, thereby avoiding the charge entirely.

The Scale of the Problem

HMRC expects the new system to cost £25 million over four years from 2026-27, potentially due to increased administration around overpayment reconciliations and taxpayer queries.

The child benefit system affects families claiming £26.05 weekly for their first child and £17.25 for additional children. For a two-child family, this totals £2,252 annually—money that higher earners are likely to gradually repay as their income rises.

Financial advisers emphasise that families should continue claiming child benefit even if they must repay it, as registration provides vital National Insurance credits that contribute towards State Pension entitlements.