Changes to make means testing of child benefit more flexible

Friday, 10 July 2015

The Treasury is proposing changes to make the income test for child benefit more flexible in response to concerns that the current system is unfair to families who experience a sudden drop in income.

Assessment of entitlement to child benefit is based on a family’s income in a previous tax year, and currently does not take account of subsequent reductions in circumstances.

At the July sitting of Tynwald, political member of the Treasury with special responsibility for social security matters, Bill Henderson MLC, will seek approval to a number of changes to the income test for child benefit. These are designed to make the system more flexible for families whose incomes have recently reduced and also to ignore certain one-off lump-sum payments when calculating entitlements.

Means testing of child benefit was introduced in April 2014. Families with annual incomes up to £50,000 are entitled to the maximum amount, while those between £50,000 and £80,000 receive a reduced payment. Families on over £80,000 a year are not entitled to child benefit.

Mr Henderson explained:

‘Over the last few months we have been contacted by a number of people getting child benefit who have received notifications from Social Security of their entitlements to child benefit for the 2015-16 tax year. They have told us that they think they have been unfairly assessed either because their family incomes have recently reduced significantly or because their assessment took into account a one-off lump-sum payment received in the income tax year on which their claim is assessed.’

He added:

‘The Treasury is very grateful to those people for bringing these matters to our attention. We have carefully considered what they have said and have decided that, whilst the principle of income testing child benefit remains fair and valid, the system does need to be more flexible to take account of certain changes of circumstances.’

Family income can reduce significantly where, for example: a woman is on maternity leave; a parent has given up work or reduced their hours of work to look after a new baby, a child under 5 or a severely disabled person; or because a parent has been off work though illness for at least 3 months.

The Treasury has also decided that certain one-off payments received in the relevant tax year, such as a lump-sum payment made on the termination of a person’s employment, should be ignored as these serve to artificially inflate a person’s income for child benefit purposes.

Mr Henderson will be seeking Tynwald’s approval of legislation to address these points at this month’s sitting. The legislation will have effect from 6th April 2015 so if approved Treasury can, upon written request, look again at any cases which are brought to its attention.

He added:

‘We will also write to everyone who is currently getting child benefit at a reduced rate, as well as to those who ceased to be entitled to child benefit from April 2015 on account of their reckonable income, to tell them about the changes and to invite anyone who thinks they may be able to benefit from the changes to get in touch with us as soon as possible.’

Issued By