Introduction Details of the Schedule
4.Paragraph 1 inserts details of the charge into Part 10 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) by creating new sections.
5.New section 681B as well as naming the charge, also identifies the person (P) with adjusted net income of more than £50,000 who will be liable to the new charge if one or both of the conditions set out in subsections (3) and (4) are met.
6.Subsection (3) explains the first condition. Condition A is where P is the claimant entitled to receive child benefit and who, if P has a partner, has an adjusted net income that is greater than that of their partner. The reference to each week reflects the weekly nature of child benefit.
7.Subsection (4) explains the second condition. Condition B provides for P to be charged if their partner (Q) is the claimant entitled to receive child benefit and P’s income is more than Q’s.
8.The effect of this section is that where there are two partners who both have adjusted net income of more than £50,000, the charge rests with the partner with the highest income. If both partners have the same income, the charge rests with the claimant to child benefit.
9.Because the charge is by reference to weeks, this sub-section also makes clear in the case of two people living together as partners that the charge will only apply to those weeks of the tax year for which the partnership exists. If the couple break up, P as the partner with the highest income will only be liable for the period from 6 April to the week in which the break up occurs. Conversely, if a couple come together and child benefit is already being paid, the partner with the highest income will only be liable to the charge for those weeks from the date the couple start living together until the end of the tax year.
10.New section 681C details the amount of the charge by reference to a formula, which applies a percentage to the total amount of child benefit received in the year by reference to conditions A and B. The percentage is the lower of 100 per cent and 1 per cent of child benefit for every £100 of adjusted net income above £50,000. The effect of the taper is to gradually increase the percentage charged between income of £50,000 and £60,000. The charge equals the full amount of child benefit for someone with adjusted net income of more than £60,000.
11.Subsection (3) applies a rounding rule that rounds down the result of applying every stage of the formula to the nearest whole number. For example, if someone has income of £57,750 and their partner receives child benefit for two children of £1752 for a whole year, the charge will be 77 per cent of the £1,752 child benefit = £1,349. The percentage is determined as follows £57,750 - £50,000 = 7,750 /100 = 77.
12.New subsection 681D extends the charge where a child is not living with the claimant but with either one or two other individuals who have income over £50,000. It ensures that those with income over £50,000 who live with a child and who receive the value of child benefit directly or indirectly from the claimant are in the same position as someone with income over £50,000 who lives with a child and claims, or whose partner claims, child benefit.
13.Subsection (1) identifies the circumstances under which the new section will apply. These are that:
14.Subsection (2) applies the charge under new section 681B to S as if that person had claimed the child benefit. This addresses the situation where S or S’s partner have adjusted net income over £50,000 and receive directly or indirectly from R an amount equivalent to what they would have received if they had claimed child benefit directly.
15.Subsection (4) creates an exemption to the circumstances outlined in subsection (1). This is where R had previously claimed child benefit on the basis that they were living with the child and, after a period of less than 52 weeks, resumes the claim on the same basis. A common example of this is where a parent moves away temporarily for work purposes and leaves the child with a family member until they return.
16.New section 681E details specific situations that are subject to special rules. Section (1) details the two circumstances where amounts of child benefit are disregarded. The first in subsection (a), disapplies the charge and clarifies the effect of the interaction between the charge in new section 681B which is based on entitlement and the election in new 13A Social Security Administration Act 1992 and 11A Social Security Administration Act (Northern Ireland) 1992 which also refers to entitlement. It also removes the need to notify liability to the income tax charge under section 7 Taxes Management Act 1970 which arises on entitlement to child benefit but where, as the result of the election, the amount received is nil. The second in subsection (b) makes clear that no liability arises in respect of any child benefit payment made after the death of a child.
17.Subsections (2) and (3) refer to the situation where there are more than two persons in a relationship, for example, in the case of polygamous marriages that were contracted outside the UK. The provision makes clear that the same amount of the charge applies, whether under new section 681B or under section 681B as extended by section 681D. It also make clear that the charge will apply to the partner with the highest income.
18.New section 681F provides the power for the Treasury to make an order that amends either the amount of the income limit in new section 681B or the  amount (X) in the formula in new section 681C (2) (b). Any such order must be made before the start of the relevant tax year. If the effect of the Order is to increase a person’s liability, it must be made under the draft affirmative procedure.
19.New section 681G defines the meaning of “partner” for the purposes of this charge and is based on the definition used for Tax Credits because child benefit is a social security benefit.
20.New section 681H contains interpretative provisions. Subsection (2) confirms that the term “adjusted net income” is given its existing meaning as defined in section 58 Income Tax Act (ITA) 2007. This is currently used to determine the amount of the personal allowance for someone aged 65 or over who has income over £100,000.
21.Adjusted net income is calculated in a series of steps. The starting point is “net income” which is the total of the individual’s income subject to income tax less specified deductions, the most important of which are trading losses and payments made gross to pension schemes. This net income is then reduced by the grossed-up amount of the individual’s gift contributions and the grossed-up amount of the individual’s pension contributions which have received tax relief at source. The final step is to add back any relief for payments to trade unions or police organisations deducted in arriving at the individual’s net income. The result is the individual’s adjusted net income.
22.Paragraph 2 makes clear that a person is required to notify his liability to the income tax charge under section 7 Taxes Management Act 1970 in the same way as they are required to notify any other liability to income tax.
23.Paragraph 3 inserts after section 13 in Part 1 of the Social Security Administration Act 1992, a new section 13A. The new provisions provide that an individual or their partner, liable to a tax charge under new section 681B, may choose to elect not to receive the child benefit to which they are entitled if they or their partner do not wish to pay the new charge. It also provides HM Revenue and Customs (HMRC) the power to make directions setting out how an election should be made and when it may be revoked, for example, if either the individual or their partner are no longer liable to pay the charge.
24.Subsection (1) of the new 13A confirms that it is the person who is claiming child benefit who decides whether they wish to elect not to be paid for all the child benefit they are entitled.
25.Subsection (2) says that an election is limited to those who believe their or their partner’s income is at level which will incur the high income child benefit charge in the tax year.
26.Subsection (3) confirms that an election will lead to payments of child benefit ceasing at a date after the election has been made.
27.Subsection (4) Where an election is made at the same time as a claim for child benefit, it will also cover any backdating of the award up to a maximum of three months (in line with the child benefit backdating rules).
28.Subsections (5) & (6) confirm that a person can revoke a previous election and so restore payment of child benefit. The revocation of the election will cover payments of child benefit due after the date of revocation.
29.Subsection (7) This provides that where a person elected not to be paid child benefit on the wrong assumption that they, or their partner, would be liable to high income child benefit charge, the person who made the election has up two years from the end of the relevant tax year to revoke the election and be paid child benefit for that period.
30.Subsection (8) confirms that persons must follow the process set out in subsections (2) to (7) in accordance with HMRC administrative directions under subsection (9).
31.Subsection (9) (a) confirms that HMRC will issue directions as to how an election may be made and revoked and from when they have effect. Subsection (b) confirms that HMRC directions may set out situations in which an election or its revocation is not acted on where either the child benefit award is not being paid at the full rate or there are doubts as to which the person has entitlement.
32.Subsection (10) This confirms that:
	the definition of what is a ‘child’ mirrors that set out in child benefit regulations;
	that an election is applied to the tax year in which it is made; and
	a ‘week’ is 7 days starting from the Monday and is attributed to the tax year into which the Monday falls.
33.Paragraph 4 inserts after section 11 in Part 1 of the Social Security Administration (Northern Ireland) Act 1992, a new section 11A. The new provisions provide that an individual or their partner, liable to a tax charge under new section 681B, may choose to elect not to receive the child benefit to which they are entitled if they or their partner do not wish to pay the new charge. It also provides HMRC the power to make directions setting out how an election should be made and when it may be revoked, for example, if either the individual or their partner are no longer liable to pay the charge.
34.Subsection (1) of the new 11A confirms that it is the person who is claiming child benefit who decides whether they wish to elect not to be paid for all the child benefit they are entitled.
35.Subsection (2) says that an election is limited to those who believe their or their partner’s income is at level which will incur the high child benefit charge in the tax year.
36.Subsection (3) confirms that an election will lead to payments of child benefit ceasing at a date after the election has been made.
37.Subsection (4) Where an election is made at the same time as a claim for child benefit, it will also cover any backdating of the award up to a maximum of three months (in line with the child benefit backdating rules).
38.Subsections (5) & (6) confirm that a person can revoke a previous election and so restore payment of child benefit. The revocation of the election will cover payments of child benefit due after the date of revocation.
39.Subsection (7) This provides that where a person elected not to be paid child benefit on the wrong assumption that they, or their partner, would be liable to high income child benefit charge, the person who made the election has up two years from the end of the relevant tax year to revoke the election and be paid child benefit for that period.
40.Subsection (8) confirms that persons must follow the process set out in subsections (2) to (7) in accordance with HMRC administrative directions under subsection (9).
41.Subsection (9) (a) confirms that HMRC will issue directions as to how an election may be made and revoked and from when they have effect. Subsection (b) confirms that HMRC directions may set out situations in which an election or its revocation is not acted on where either the child benefit award is not being paid at the full rate or there are doubts as to which the person has entitlement.
42.Subsection (10)  This confirms that:
	the definition of what is a ‘child’ mirrors that set out in child benefit regulations;
	that an election is applied to the tax year in which it is made; and
	a ‘week’ is 7 days starting from the Monday and is attributed to the tax year into which the Monday falls.
43.Paragraph 5 makes amendments to ITEPA 2003. Paragraphs (5)(1) to (3), (5)(5) and (5)(7) are technical consequential amendments to ITEPA 2003.
44.Paragraph (5)(4) provides for the high income child benefit charge to be included in PAYE regulations so that it can be collected through PAYE unless the taxpayer objects. This means a person’s PAYE tax code can be amended so that it includes an adjustment that will collect the tax due for the year in which the deduction is made in the same way as for other PAYE liabilities. Existing provisions allow an adjustment for collecting tax due from an earlier year.
45.Paragraph (5)(6) is a technical amendment which ensures that the provisions in new section 681F (3) apply.
46.Paragraph 6 inserts amendments to ITA 2007. Paragraph (6)(2) inserts a reference to the new high income child benefit charge to the overview of tax acts that make provision for income tax in section 1 ITA 2007.  Paragraph (6) (3) provides for the new high income child benefit charge to form part of an individual’s liability to income tax for a tax year.   The new charge is added to the list of additional tax charges relating to an individual in section 30 ITA 2007 and will thus be included at step 7 of the calculation of liability to income tax in section 23 ITA 2007.
47.Paragraph (7) contains the commencement provisions. These make clear that the first tax year for which the high income child benefit charge applies is 2012/13. It does not apply to any child benefit entitlement that arises in that tax year before the week beginning 7 January 2013, which is the first Monday in 2013.