An Upper Tribunal has just ruled that HMRC cannot use their discovery assessment rules to impose the High Income Child Benefit Charge (HICBC) if the taxpayer doesn’t file a self assessment tax return.
This could mean that hundreds of taxpayers who’ve already paid HICBC under these circumstances can now apply for a refund.
What is the High Income Child Benefit Charge?
Families received Child Benefit at a rate of £1,100 per year for the oldest child and £728 per year for every other child. The Higher Income Child Benefit Charge (HICBC) means that families where at least one adult earns over £50,000, they must pay back 1% of their child benefit for every £100 of income over £50,100. This ceilings at £60,000, where 100% of Child Benefit is owed back to HMRC.
This applies to single parent families and those in marriages or civil partnerships. The person earning over the £50,100 threshold is responsible for paying the HICBC. Even if the Child Benefit payments go to their partner, or if they’re not their biological children.
The HICBC rules state that this charge must be paid through the self assessment tax return process, even if all earnings are received through the PAYE system.
You can opt out of Child Benefit payments. But this can have an adverse effect on your future State Pension entitlement, so you need to take this into consideration when making your decision.
Specifics of this case
Jason and Samantha Wilkes appealed against their HICBC for benefit received in 2014-16. This bill totals £4,000. Mr Wilkes said he didn’t know about the change in the law in 2013 that required them to pay this Higher Income Child Benefit Charge until he was contacted by HMRC in 2018. In this letter, HMRC told Mr Wilkes that he may be liable for this charge. He replied confirming that he is liable to pay HICBC.
Later in the year, Mr Wilkes received another letter saying that HMRC had done ‘Discovery Assessments’ for previous tax years – namely 2014-16. And that he now owed £4,000 for these missed payments. They didn’t add a penalty because they accepted that he had a ‘reasonable excuse’ for not paying.
The cornerstone of Mr Wilkes appeal against this charge is that HMRC should not have used their Discovery powers because he didn’t file a self assessment tax return for the years in question. After going through the Lower Tier Tribunal, this final Upper Tier Tribunal upheld his appeal on all counts. Which means he won’t have to pay the £4,000.
HMRC now have until the end of July to appeal against the decision.
What are HMRC’s Discovery Powers?
HMRC’s regulation SALF409 is called ‘Enquiries into Tax Returns: discovery assessments’. It means that HMRC can investigate the ‘discovery’ of a tax underpayment in a previously closed tax year. There are strict rules within their own regulations, and one of them is that a self assessment tax return has been submitted.
The rule exists “to prevent a loss of tax.”
Why is this ruling important?
The impact of this ruling has the potential to go beyond this one family. This could effect other parents and carers whose HICBC was also the result of a Discovery Assessment without a self assessment tax return. They may start filing for those charges to be refunded to them.
Mr Wilkes was represented by James Austen, head of tax disputes at Collyer Bristow. He said: “I have been delighted to support Jason and Sam Wilkes in this appeal, and the outcome is a wonderful vindication of their case.
“The Upper Tribunal’s decision comprehensively overturns any argument that HMRC can issue Discovery Assessments in HICBC cases where taxpayers have not been filing self-assessment tax returns.”
“Hundreds of thousands of taxpayers who have been anxiously awaiting this decision will be elated, and one hopes that HMRC will swiftly reimburse those who have been wrongly charged.
“As in Jason’s case, HMRC has resorted to Discovery Assessments almost by default for far too long: this judgement will hopefully cause them to think more carefully about their proper use in future.’
An HMRC spokesperson gave their reaction to the Upper Tribunal proceedings: ‘We are considering the Upper Tribunal’s decision.
“All of the taxpayers who have been assessed are still liable to the HICBC, and nothing in the Tribunal’s judgement calls that into question.
“It is for the taxpayer to notify HMRC when they are liable to HICBC, and we will continue to contact customers where we can to inform them they may be liable to pay HICBC to help them get their tax affairs right.”