13 January 2024
There have been many cases brought to tribunal in relation to taxpayers’ non-compliance with the high income child benefit charge (HICBC) in recent years, but a recurring theme in each of these is the minimal liability to tax and/or penalties that HMRC is pursuing.
This is evidenced in one of the latest cases, Scott Macarthur vs HMRC, where the amount being disputed by the taxpayer and pursued by HMRC, was a penalty of just £217.08.
Child benefit is of great importance to many working parents, especially when costs are rising. Payments of up to £24 a week per child are made to parents every four weeks, and whilst just over £100 a month may not seem significant, many parents come to rely on this income.
HMRC has attempted to forewarn parents over the years that if they or their partner have over £50,000 annual adjusted net income, and one of them is claiming child benefit, they may need to pay the HICBC. If the individual’s adjusted net income is over £60,000, the charge will be equal to the amount of the benefit claimed, making a claim not worthwhile. However, it is important to note that claiming child benefit for a child under 12 provides the claimant with National Insurance (NI) credits, meaning there are no gaps in their NI record for those years, thereby protecting the individual’s entitlement to state pension in the future. It is therefore possible to make a claim for child benefit but opt out of receiving it, and by doing so avoid having to deal with the HICBC.
Unfortunately, a large number of households that include a taxpayer in the £50,000 to £60,000 net income bracket are unlikely to know how to calculate their adjusted net income amount, or to realise the impact of taxable benefits, or may simply be unaware of the charge, often because when they first started claiming child benefit they were not earning amounts near the threshold. These taxpayers are being penalised for their lack of knowledge, and HMRC is clearly more than happy to take these cases all the way through a costly tribunal process to collect relatively minor additional revenues.
The introduction of the HICBC has clearly resulted in an administrative burden for HMRC, involving nudge letters being sent to taxpayers reminding them of their HICBC obligations, enquiries being opened into non-compliant taxpayers, and cases being referred for appeal and onwards to tribunal. What is not clear, however, is whether this allocation of HMRC resource is efficient given the amounts of tax and potential penalties at stake.
Whilst the statistics in an HMRC FOI release from December 2023 show that the vast majority of compliance checks opened result in HICBC being owed, the revenues arising are clearly modest. In this most recent tribunal case, HMRC was again successful, resulting in the taxpayer owing the £217.08 penalty.
More can be done to help taxpayers get their tax affairs right in respect of the HICBC. But with the tax gap stood at £35.8bn in 2021/22, we cannot help but wonder whether HMRC’s limited resource should be allocated to areas of tax where there could be more significant tax at stake, rather than those taxpayers who make relatively insignificant innocent mistakes.