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Child Benefit Cuts

Recent changes to Child Benefit, in the form of the High Income Child Benefit Tax Charge, effectively negate the ‘benefit’ of Child Benefit for households where one person earns over £60,000.  However if you are considering not registering and effectively ‘opting out’ of the receipt of Child Benefit you may want to ensure that you are aware of the implications.  This applies particularly to couples who are separated or who are in the middle of separating.  In addition, the new tax charge is something which some couples may wish to consider if they ever separate.
The background
Where Child Benefit is received by a parent who earns over £60,000, or a parent whose partner residing in the same household earns over £60.000, the Benefit has to be repaid to HMRC by the highest earner in the household, in the form of a tax charge.  HMRC have emphasised that this new tax charge is a tax charge payable to HMRC and not a repayment of Child Benefit to the Child Benefit Office.  For those who earn between £50,000 and £60,000, the ‘benefit’ of the Benefit is gradually withdrawn as they have to pay a sum equivalent to a proportion of the Benefit back through the tax charge.
The highest earner will be required to submit a Self-Assessment tax return stating their income and the fact that they or their partner are in receipt of Child Benefit. The alternative is that the recipient of the Child Benefit chooses to stop receiving the Benefit all together.  In families where a new partner or step-parent resides in the house, their income will be considered alongside that of the parent in receipt of the Benefit. 
It is only the highest earner in a household who is liable for the repayment.  This means that where one person earns £54,000 and the other earns £52,000, the person earning £54,000 will be liable for the repayment.
Why a parent should register for Child Benefit even when potentially affected by the new tax charge
In situations where parents are separated and the care of the child is shared, the receipt of Child Benefit is still used as an indicator by both the Child Support Agency (CSA) and the new Child Maintenance Service (CMS) to identify the ‘parent with care’.  Even in so called ‘shared care’ arrangements, unless the shared care is equal, the CSA and CMS will still identify one parent as being the ‘parent with care’ and one parent as being the ‘non-resident parent’.  The ‘non-resident parent’ is then financially assessed to determine the amount of maintenance that they should be paying to the ‘parent with care’.
It is therefore important to register for Child Benefit, even if this is on a ‘nil payment’ basis.  Registration for Child Benefit is also advisable for other reasons such as the protection of National Insurance credits and because it ensures the child will automatically receive a National Insurance number on their sixteenth birthday.
Repayment of Child Benefit due after separation in the event the couple were married
Another consequence of the recent changes to Child Benefit is that the tax charge or ‘repayment’ due in respect of the receipt of the Benefit will require to be paid by one of the couple in the first instance although it will be treated as a matrimonial debt for divorcing couples.
Whilst it is unlikely that the amount required to be repaid to HMRC through the tax charge will represent a significant sum for most couples, it is worth bearing in mind that the repayment will have to be made by the highest earner, even if unaware that their partner was in receipt of Child Benefit.  In addition, the Revenue will seek immediate repayment, rather than waiting for the financial matters resulting from the divorce to be resolved.
Take the following situation.  A mother resides with her child and her new husband, the child’s step-father.  The mother earns £45,000 and the step-father earns £60,000.  The step-father is therefore classed as a ‘high earner’ for these purposes.  The mother claims Child Benefit in respect of her child but the step-father does not see these payments and has minimal involvement with the raising of the child.  The couple separate half way through the tax year and the step-father moves out.  The step-father will be required to make the repayment for the appropriate amount of Child Benefit received by the mother when he lived in the same household as her.
HMRC have said that they will expect couples to be open with one another about their income and whether they are in receipt of Child Benefit.  That said, they will provide some ‘rudimentary’ information to allow ‘high earners’ to comply with the new rules if they do not know whether they should be submitting a Self-Assessment tax return.
In summary, in spite of the recent Child Benefit cuts, it is important to still register for the receipt of Child Benefit, even if this is on a ‘nil payment’ basis.  In addition, separating couples should be aware of the fact that a ‘high earner’ will be liable for a tax charge in respect of Child Benefit that has been received by the household.
If you would like to receive advice specific to your situation, please don’t hesitate to contact a member of our Family law team by telephoning 0131 200 1200 or emailing info@balfour-manson.co.uk