Surely tax on child benefit shouldn’t be so complicated?

The case of Ian Holland v HMRC demonstrates how taxpayers can unsuspectingly fall within the high income child benefit charge (HICBC). It also highlights that HMRC officers still do not fully understand how the HICBC legislation works and how it interacts with the administration of child benefit under the Social Security Contributions and Benefits Act 1992.

HMRC commenced its enquiry on 4 December 2019 by asking the taxpayer if he was liable to HICBC and, if so, to register for self-assessment. The taxpayer failed to respond, believing that as he had received no child benefit for several years it could not apply to him. The tribunal case concerned an appeal against the two discovery assessments subsequently issued for the tax years 2018/19 and 2019/20 totalling £3,576.

Mr Holland started claiming child benefit in his name in January 2004, after his first child was born. The benefit was initially paid into a joint account, held with his then wife. After their separation, his ex-wife became sole beneficiary of the bank account which received child benefit payments in 2015. The children continued to reside with Mr Holland’s ex-wife for the period in question.

The child benefit continued to be paid into the bank account solely operated by his ex-wife, as were Mr Holland’s monthly child maintenance payments, which always exceeded the child benefit payments.

Mr Holland appealed the assessments on the basis he had not received the payments and wasn’t aware that his name was ‘aligned’ with the payments. HMRC repeatedly informed the taxpayer verbally that he would not be liable for the HICBC if he did not receive the child benefit. The First-tier Tribunal (FTT) ruled this was incorrect as Mr Holland’s liability to the HICBC was determined by his entitlement to child benefit.

As the taxpayer’s child maintenance payments exceeded the child benefit, he had an entitlement to the child benefit, as did his ex-wife with whom the children resided. However, under the child benefit rules Mr Holland’s entitlement took priority over his ex-wife as the child benefit was awarded to him.

The judge in this case commented that she could understand how Mr Holland could find the outcome unfair, but unfortunately the tribunal has no jurisdiction to consider whether or not the law is fair.

This case is yet another example of HMRC’s relentless approach of targeting taxpayers who have fallen foul of the HICBC. Whilst the decision was found in favour of HMRC in this case, this followed nearly four years of correspondence, including incorrect verbal advice from £3,576.

Whilst the government announced, in the 2024 Spring Budget, its intention to consult on the HICBC with a view to it becoming administered according to household income rather than income of the higher earner with effect from 6 April 2026, the full details of this will not be known for some time. In the meantime, even with the increase in the HICBC threshold to £60,000 also announced in the 2024 Spring Budget, more families are likely to be liable for the HICBC in the coming years as wages rise, which will likely result in more instances of unintentional errors and stressful enquiries from HMRC.

HMRC statistics show that since 2012 there has been a steady reduction in the number of families receiving child benefit payments, with around 683,000 families choosing to opt out of the payments, impacting over one million children. It is likely this trend will continue with taxpayers being nervous about getting their affairs wrong.

In a period where taxpayers are struggling to make ends meet due to the impact of rising household costs, many will be reluctant to incur the costs and stress of an intrusive HMRC enquiry. This may result in families, who are in need of the extra support, being deterred from claiming the child benefit they are entitled to.