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Law Centre NI challenges current HMRC practice on child benefit

Law Centre NI will be in the High Court on 14 November to challenge HM Revenue and Customs (HMRC) on how it applies the rules on which a parent is awarded child benefit.

We have brought the judicial review proceedings on behalf of a mother whose payment of child benefit was stopped by HMRC and instead transferred to her former spouse. Our client is in minimum wage employment, but it is argued the child’s father is a higher rate taxpayer and therefore liable to repay child benefit to HMRC.

The ‘high income child benefit tax charge’ rules, introduced ten years ago, mean that people earning over £50,000 are required to repay a portion of any child benefit they receive, so do not receive the full financial assistance available.  Anyone earning over £60,000 must repay all the child benefit they receive.

In our client’s case, both parents have 50/50 custody of their child. HMRC’s decision to award child benefit to the higher earner means that our client loses out on vital financial support for her child.

Current HMRC practice in cases of 50/50 custody is to exercise its discretion to decide which parent is awarded child benefit. Its own guidance requires it to consider ‘who stands to lose most’ in reaching a decision on which parent should receive the award. In our challenge, we are arguing that HMRC has not properly considered ‘who stands to lose most’ by awarding child benefit to the higher earner, who will have to repay it.

Owen McCloskey, Head of Social Security at Law Centre NI, said:

“Families who lose out on vital child benefit where parents share 50/50 joint custody need to see a change in HMRC practice. By bringing this judicial review, we want to ensure that – where parents are sharing equal joint custody of children – HMRC will properly consider the impact of higher income tax charges in its decision-making.”

Law Centre NI Director, Ursula O’Hare, added:

“Child benefit is a vital financial support to struggling parents and we want to see HMRC apply its discretion in a way that maximises the amount of money reaching children. This means prioritising parents who are not in the high earning income bracket because ultimately the child loses out. It is time for HMRC to review its practice to ensure its approach helps lift children out of poverty”.

Law Centre NI is grateful to the Public Interest Litigation Support (PILS) Project for their support in this case.

Kate Barry, PILS Pro Bono Coordinator, paid tribute to the lawyers involved:

“We are delighted to have facilitated pro bono advice and representation in this case through our Pro Bono Register and to have provided financial support via our Litigation Fund. This challenge was made possible through the commitment of skilful pro bono lawyers, and we thank the barristers involved – Donal Sayers KC and Lara Smyth – for their ongoing support.”

How widespread is this issue?

It is impossible to tell how many families have been or are affected by current practice.  A recent Freedom of Information request from Law Centre NI revealed that HMRC has taken approximately 25,000 discretionary decisions across the UK about who should get child benefit since the introduction of the high-income child benefit tax charge in 2013.

HMRC does not record how many times an award of benefit has gone to a high-income earner, rather than to the parent with lower income.

Decision makers must decide who stands to lose most, but HMRC guidance does not explicitly refer to the potential impact on the child of a decision to award child benefit to a parent with equal custody who is subject to the higher-income child benefit tax charge.

What is the change we want to see?

We hope that this case will lead to changes in HMRC’s guidance to fully reflect the impact of the High-Income Child Benefit Tax Charge on its decision-making.

This will have a wider impact beyond our client and help get more money to where it is needed for families on low-income.