The preliminary plan by the Government of 2010-2015 to eliminate child benefit for any family in which an earner was a 40% taxpayer straightforward but triggered distress as it was seen as unjust. At Budget 2011, the Chancellor revealed actions to soften the blow. From 7 January 2013, child benefit was consequently reserved employing a charge to income tax, applying only to families where an individual has taxable earnings of £50,000 or even more. For individuals with income between £50,000 and £60,000, there is a decrease, so that the amount of the bill is a proportion of the child benefit, avoiding a precarious position. For taxpayers with an income over £60,000, the total amount of the charge is equal to the amount of the child benefit acquired.
This strategy is complicated to execute and enforce high effective tax rates on the earnings involving that range which may, in turn, build its deterrent. HMRC outlines a specific complication for taxpayers with taxable earnings in excess of the £60,000 limit; when individuals would usually first become eligible to child benefit for a child (or each child, if more than one), they must still claim the services simply because it can support to guard state-pension contributions and will make sure the child gets a national insurance number. They can then select either to be given the payments and pay the charge or stop receiving payments.
FA 2012, s. 8 and Sch. 1 set out the information of the charge. An individual is liable to a charge to income tax in a tax year if his or her ‘adjusted net income is more than £50,000 and either that individual or his partner is eligible for child benefit.
‘Adjusted net income for a tax year means the individual adjusted net income for that tax year as established under ITA 2007, s. 58 (see ¶155-600).
‘Partner’ is described as either a man or woman of a married couple (or those not wedded but living together as a couple) or a civil partner (or those living together as if they were civil partners) assuming they are not separated under a court order or in situations in which the breakup is likely to be forever (ITEPA 2003, s. 681G).
If both partners adjusted net income is more than £50,000, the charge is applicable to the partner with the high earnings. Though the limit of £50,000 relates to a tax year, the concerns of entitlement to child benefit and the presence of a partner are determined on a weekly basis, highlighting the weekly character of child benefit. Thus, the charge depends on entitlement to child benefit for weeks within a tax year. A week basically a period of seven days starting with a Monday, falling within a tax year only if that Monday is inside the tax year (ITEPA 2003, s. 681H(3)).
Extension of charge in the event where a child not residing with the claimant
The charge also is applicable to individuals over the income limit who are not on their own eligible to receive child benefit in respect of a child residing with them but who get the value of the child benefit from somebody (R) who is simultaneously eligible to claim because of contributing to the expense of providing for the child and who is not on his own responsibility for the charge (and does not have a partner liable to the charge) (ITEPA 2003, s. 681D). The extension of the charge will not apply wherein R had before claimed child benefit on the grounds of living with the child and, after a duration of fewer than 52 weeks, begins to claim on that basis all over again (ITEPA 2003, s. 681D(4)). This is specified to protect the case where, for instance, a father or mother moves away briefly for work and leaves the child with a family person until the parent comes back.
An individual eligible for child benefit may, if he or she sensibly anticipates that he or she or a different person might be liable to the high-income child-benefit charge, make a choice not to receive the child benefit. Any amounts subject to such a selection will be ignored for the high-income child-benefit charge. There is also an exemption in respect to entitlement to child benefit after the demise of a child or eligible young person. It should be observed that where generally there is no responsibility to inform liability to income tax due to the fact that all income is covered by PAYE, the causing of a high-income child-benefit charge will generate such an obligation.
HMRC is empowered to add the high-income child-benefit charge in PAYE laws to recover through PAYE except if the taxpayer objects. Those looking for a tax adviser or accounting firm to act on their behalf for particular issues relevant to the high-income child-benefit charge require formally to authorize them using form CH995.