Changes to the rules on Child Benefit come into force in January 2013 and will reduce the entitlement of about 1.2 million families. Families where one parent is earning more than £50,000 a year will no longer be able to claim the total amount of benefit, under government rules which will be implemented by Her Majesty’s Revenue and Customs (HMRC).

Child benefit is currently a tax-free payment that is aimed at helping parents cope with the cost of bringing up children. One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children. The payments apply to all children aged under 16 and in some cases until they are 20 years old. HMRC pays out to nearly 7.9 million families, with 13.7 million children.

What will change on 7 January 2013 is that a parent who earns more than £60,000, and who continues to claim child benefit, will be taxed. In detail, the benefit received will be recouped gradually as the income of the highest earning parent rises above £50,000, with the child benefit being eroded completely once their income is £60,000 or more. This was announced in the 2012 Budget, by Chancellor George Osborne.

What may happen is that if one of the parents earns more than £60,000, they may choose to stop claiming child benefit, or persuade their partner to do so and save the tax authority the trouble of getting it back. If they or their partner keeps claiming it, then the higher earner will have to admit this in a self-assessment tax form, and HMRC will tax the high earner on the child benefit which they, or their partner, claims. There is an expectation that couples will disclose to each other whether they claim child benefit, or earn above £50,000 a year.

Only one parent can receive benefit on behalf of their son or daughter. HMRC says it will “expect” couples to give each other basic financial details to see if they should be taxed. HMRC will also let taxpayers ask for rudimentary information from its records to see whether or not their partners receive child benefit, or have an “adjusted net income” above £50,000, and should be paying the new tax. While this runs counter to the general principle of taxpayer confidentiality which has been a formal part of the income tax system since 1803, as well as against the policy of separate taxation of married couples which has been in place since 1991, HMRC says its rules give it the authority to do this.

Problems could arise where couples want to maintain some privacy between each other, for example, if their relationship has broken down. If a couple has split up, both parents might try to claim child benefit, even if they live apart, but only one of them will get it. If somebody is responsible for a child, they normally get the benefit for it. So, usually, the parent with whom the child lives receives the benefit. However, the other parent can get child benefit even if their child does not live with them if they pay towards their upkeep and what they pay is at least the same as the amount of child benefit (so they do not profit) and the person the child lives with is not already receiving child benefit. The changes to child benefit clearly require parents to be open and honest with each other about their income and benefits…

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