THE GOVERNMENT has confirmed that the upcoming Finance Bill will include changes to discovery assessments, allowing HMRC to recoup unpaid high income child benefit charges going back almost ten years.

In todays Shipleys Tax brief we look at this concerning development.

What’s the High-Income Child Benefit charge (HICBC)?

The unpopular High-Income Child Benefit Charge (“HICBC”) was introduced in 2013 and is a tax charge paid by so called “higher earners” which claws back up to 100% of any child benefit received by the earner or their partner. A high earner for this purpose is when the income of the child benefit claimant or their partner exceeds £50,000 p.a. The charge is collected via the annual self-assessment tax system and taxpayers affected by these rules are required to register for self-assessment and pay their HICBC by 31 January following the end of the tax year.

What is happening now?

Despite HMRC administering the collection of child benefit payments from high earners, it is still finding taxpayers that have not declared the benefit in previous years. In a recent case, it was found that HMRC did not have the specific legal powers to recover the HICBC even where the charge remained unpaid for a few years. The decision in Wilkes v HMRC found that HMRC did not have the power to impose the HICBC by means of “discovery assessment” (a form of enquiry into a tax return) as there was no income which ought to have been assessed. As a result, the child benefit claimant Mr Wilkes did not have to pay the tax charges.

If you can’t beat it – change the law…

As a consequence of losing the case, the government has confirmed that the upcoming Finance Bill will include changes to tax investigation powers, allowing HMRC to recoup unpaid high income child benefit charges going back almost ten years.

Once the Finance Bill is enacted, HMRC will be able to open tax investigations (“discovery assessments”) to collect any unpaid child benefit tax charges from as far back as 2013. However, the rule change will not apply to those that have already appealed against such assessments.

What does this mean?

Individuals with income over £50,000, where either they or their partner receives child benefit, could soon receive a large unexpected tax bill from several years ago.

This could have drastic consequences on unsuspecting child benefit claimants. For example, complications around relationships where parents are separated or where a relationship ends, or those who are not married are not properly accounted for. At Shipleys Tax we advocate paying the correct amount of tax, however where the collection system is flawed there are many instances where injustices will occur and individuals will be faced with large tax bills that they were genuinely unaware of, or don’t have the finances to meet the liability due to the pandemic, or the amount has been incorrectly assessed due to inherent flaws in the system.

If you are affected by any of the issues above and would like more information, or need help with tax investigations please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.