Tax payers and their advisors will need to take care in respect of legislation introduced in the Finance Act 2012 to ensure that new rules are applied correctly

The high income child benefit charge arises from 7th January 2013 for recipients who earn more than £50,000 per annum or whose partner (spouse, civil partner or common law spouse or common law civil partner) earns in excess of £50,000.

The charge is applied on a week by week basis. If a new relationship commences part way through the year and the income limits are exceeded, the charge arises from the date the relationship commences.  Similarly, if a relationship ceases (separated under a Court Order or in circumstances where the separation is likely to be permanent) the charge will cease to apply from that date.

The charge is calculated at 1% of the child benefit being received for every £100 of income in excess of £50,000, on the partner with the highest income. Thus the child benefit is fully clawed back once income is more than £60,000.  Child benefit for two children is £1,752 and the charge would be £17.52 for every £100 earned over £50,000.

Where a charge arises, the recipient can elect not to receive the benefit and this will not adversely affect entitlement to other benefits.  It is also likely that the recipient will have an obligation to disclose the fact that their partner is earning in excess of £50,000 which could cause difficulty if they are not fully aware of their partner’s circumstances.

From a practitioner’s point of view this adds another layer of complexity when ensuring that clients’ tax returns are completed correctly, as they will be required to look at household circumstances in a system designed for independent taxation.

It is understood that HMRC will be contacting the individuals they believe will be affected by the new legislation.  No doubt further practical problems will arise from 7th January 2013.