Weekly tax brief
Justice must be seen to be done in high income child benefit charge case
02 June 2021
On Wednesday 26 May 2021 the Upper Tribunal heard HMRC’s appeal in the leading high-income child benefit charge (HICBC) case, Wilkes v HMRC.
The outcome of this case will affect thousands of taxpayers as it will set a binding precedent on whether HMRC is able to impose the HICBC by means of a discovery assessment. It may also have implications for the validity of discovery assessments more generally.
HICBC was first introduced in 2013. Since that date individuals who receive child benefit, where either the claimant or their partner’s income is more than £50,000, are subject to a specific tax charge if they continue to receive child benefit payments. This charge should be declared on their self-assessment tax return or if they are not already within the self-assessment system they will need to register.
Jason Wilkes was among the large number of taxpayers who did not realise they were liable to the charge. In 2018 HMRC wrote to Mr Wilkes to notify him that he might be liable to the HICBC. Having considered his position Mr Wilkes agreed and HMRC issued a discovery assessment for underpaid tax. HMRC accepted that he had a ‘reasonable excuse’ for not paying the HICBC at the time due to a lack of awareness of the charge and did not seek to impose penalties.
Mr Wilkes took his case to the First-tier Tax Tribunal (FTT) and successfully appealed against the assessment on the grounds that HMRC had no power to impose the charge by means of discovery assessment beyond the usual four-year time limit as there was no income which ought to have been assessed that wasn’t (as neither the child benefit or the charge itself is taxable income).
The FTT agreed with Mr Wilkes and cancelled the assessments. It is against that decision that HMRC has now appealed to the Upper Tribunal.
The FTT decision may be overruled when the decision of the Upper Tribunal is published. However, if the Upper Tribunal finds for Mr Wilkes, HMRC may ask Parliament to change the law so that discovery assessments provisions are changed – potentially retrospectively – to allow them to be used in cases such as this. Many would regard that as unjust.
If past performance is anything to go by, the outcome of the case could be known within three months of the hearing. The many families who have received similar assessments from HMRC will be following this case closely as the majority of these assessments should be cancelled if the Upper Tribunal finds in favour of Mr Wilkes.
The outcome of this case will affect thousands of taxpayers as it will set a binding precedent on whether HMRC is able to impose the HICBC by means of a discovery assessment. It may also have implications for the validity of discovery assessments more generally.
HICBC was first introduced in 2013. Since that date individuals who receive child benefit, where either the claimant or their partner’s income is more than £50,000, are subject to a specific tax charge if they continue to receive child benefit payments. This charge should be declared on their self-assessment tax return or if they are not already within the self-assessment system they will need to register.
Jason Wilkes was among the large number of taxpayers who did not realise they were liable to the charge. In 2018 HMRC wrote to Mr Wilkes to notify him that he might be liable to the HICBC. Having considered his position Mr Wilkes agreed and HMRC issued a discovery assessment for underpaid tax. HMRC accepted that he had a ‘reasonable excuse’ for not paying the HICBC at the time due to a lack of awareness of the charge and did not seek to impose penalties.
Mr Wilkes took his case to the First-tier Tax Tribunal (FTT) and successfully appealed against the assessment on the grounds that HMRC had no power to impose the charge by means of discovery assessment beyond the usual four-year time limit as there was no income which ought to have been assessed that wasn’t (as neither the child benefit or the charge itself is taxable income).
The FTT agreed with Mr Wilkes and cancelled the assessments. It is against that decision that HMRC has now appealed to the Upper Tribunal.
The FTT decision may be overruled when the decision of the Upper Tribunal is published. However, if the Upper Tribunal finds for Mr Wilkes, HMRC may ask Parliament to change the law so that discovery assessments provisions are changed – potentially retrospectively – to allow them to be used in cases such as this. Many would regard that as unjust.
If past performance is anything to go by, the outcome of the case could be known within three months of the hearing. The many families who have received similar assessments from HMRC will be following this case closely as the majority of these assessments should be cancelled if the Upper Tribunal finds in favour of Mr Wilkes.
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