14 November 2023
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 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 earned more than £50,000 a year. The HICBC raises over £1bn each year but is a difficult tax to administer because many families do not know about the charge and compliance may involve having to register and file a self-assessment tax return for the first time. As a result, HMRC is 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 backdate the collection of the HICBC, leading to calls to refund thousands of people that HMRC 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 back taxes it claimed he owed because of his wife’s child benefit payments 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 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 actions. Looking forward, couples should review any ongoing child benefit claims to ensure that they remain compliant in their tax affairs.