Taxpayers continue successful fight against retrospective child benefit charges

Ten years on from the introduction of the high income child benefit charge (HICBC) taxpayers continue to fall foul of the rules, with HMRC seeking to raise assessments and levy penalties and interest for a tax charge many taxpayers remain unaware that they are liable to pay. The latest case to reach tribunal in this long running saga has resulted in yet another successful appeal by the taxpayer against HMRC’s recently extended discovery assessment powers.

The HICBC claws back some or all of the child benefit paid to couples where at least one partner has an adjusted net income (broadly taxable income adjusted for the gross equivalent of gift aid and pension contributions) of more than £50,000 a year. The HICBC raises over £1bn each year but is difficult to administer because many families do not know about it, and compliance may involve having to register for self-assessment and file a tax return for the first time. As a result, HMRC seems to be pursuing a campaign to educate through enforcement.

In 2021, a landmark decision made by the Upper Tribunal decided that HMRC was wrong to use discovery assessments to collect the HICBC for years that would otherwise be out of time for assessment, leading to calls to refund thousands of people that HMRC had chased for historic tax payments. In turn, legislation was updated in Finance Act 2022 to grant HMRC the power to assess backdated tax in relation to the HICBC. 

In the recent case of Mr James Fera v HMRC, the tribunal ruled that HMRC could not pursue Mr Fera for £4,000 in HICBC it claimed he owed because of child benefit received by his wife between 2017 and 2020. 

Following the 2022 update, HMRC can now make backdated HICBC assessments, but only if an appeal was not already in place on or before 30 June 2021. Despite HMRC’s argument that Mr Fera’s appeal did not meet the conditions, the tribunal found that Mr Fera had lodged a valid appeal in March 2021. Consequently, this case highlights a successful challenge to HMRC’s extended powers to raise backdated HICBC assessments.

Retrospective changes to tax law are very rare and almost always controversial. HMRC is likely to have greater success in raising backdated assessments since the legislative changes were made in 2022, but this latest case demonstrates that taxpayers should remain vigilant to correspondence from HMRC and always consider the validity of any such action. Looking forward, couples should review any ongoing child benefit claims to ensure that they remain compliant in their tax affairs.