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Self Assessment Check - Child Benefit Charge

Tips to mitigate penalty?

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My client earns over £50k and has two children. One of the questions in my annual self assessment checklist is whether child benefit is claimed. When I first started acting for him (2016-17 tax return), my client had to check this with his wife, which he did by e-mail, copying me in on his wife's reply where she said that no child benefit was claimed, and that she had not received the benefit for many years.

We've now received a letter from HMRC for a check of the self assessment tax return for 2017-18 in respect of the HICBC. I asked my client to check the information he had previously given me on child benefit - his wife called the child benefit office and it turns out they have been claiming child benefit, paid into a joint bank account, but he assures me that they had no idea the benefit was being received, as they don't routinely look at their bank statement or take any particular note of transactions on the account. His wife said she recalled hearing about the HICBC in the media but thought that the benefit would be stopped automatically for those affected.

Obviously I need to write back to HMRC with this information,  and I wondered if other practitioners who may have encountered such checks before would have any tips to share on how to mitigate the potential penalty. I plan to argue that my client did take reasonable care in completing his return by checking with the claimant as to whether the benefit was actually claimed, and have the e-mail correspondence as evidence of his "conversation" with his wife regarding receipt of the benefit.

The client is very willing to pay all of the outstanding HICBCs, for all relevant tax years - even though the check itself only applies to 2017-18. I'm sure HMRC would start looking at earlier tax years though, so I presume it makes sense to make an unprompted and full disclosure of the child benefit claimed for all earlier years.

I'm quite astounded that someone could receive child benefit for many years and have no idea, but I do actually believe the client when they say they simply didn't look at their bank account. Whether HMRC will also believe them remains to be seen!

Any tips or advice would be much appreciated.

Replies (22)

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By Wanderer
14th Oct 2019 13:24

Admit it fairly quick and ask for postponement of the penalties.

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Replying to Wanderer:
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By sparkler
14th Oct 2019 13:26

The penalty hasn't actually been charged yet so nothing to postpone - I'm hoping to persuade HMRC to charge a low penalty, or better still none at all. They want to know about the taxpayer's behaviour in order to calculate the penalty they will apply - hence I would like to persuade them that reasonable care was taken with the tax return!

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By lionofludesch
14th Oct 2019 13:32

sparkler wrote:
..... hence I would like to persuade them that reasonable care was taken with the tax return!

Sure you would.

But do you think that it was ?

Be honest.

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Replying to sparkler:
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By sparkler
14th Oct 2019 13:55

It's a tricky one - I am surprised they didn't notice the benefit received, but then not everyone reconciles their bank account every month like I do (don't all accountants do this?!) They're going to have to pay thousands of pounds of retrospective HICBC charges to HMRC (and rightly so) - but as their accountant, I think I'd be doing them a disservice if I didn't at least try to mitigate the potential penalties on such a large bill. I know that they didn't set out to defraud HMRC so I will do my best to make sure they don't come across as completely careless in my reply to HMRC.

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Replying to sparkler:
By Duggimon
14th Oct 2019 14:12

I don't reconcile my bank account every month, or indeed ever, but I know where all the lodgements come from.

I'd probably do the same as you in your position but it definitely is careless and would be surprised if HMRC didn't think so too.

I would probably keep the reply quite short, focus on the desire to make good all the years for which the charge was missed, how sorry they are and that it was an honest mistake, then if it comes back with penalties on, advise them just to pay because there's no real grounds for appeal here.

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By sparkler
14th Oct 2019 14:19

Thanks - that's pretty much what I've covered in my draft response.

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Replying to Wanderer:
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By lionofludesch
14th Oct 2019 13:26

Wanderer wrote:

Admit it fairly quick and ask for postponement of the penalties.

You can't ask for suspension of penalties for this. You can't set conditions that comply with the SMART rules.

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Replying to lionofludesch:
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By Wanderer
14th Oct 2019 14:45

lionofludesch wrote:

Wanderer wrote:

Admit it fairly quick and ask for postponement of the penalties.

You can't ask for suspension of penalties for this. You can't set conditions that comply with the SMART rules.

Had one through just today where HMRC suspended penalties!
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By lionofludesch
14th Oct 2019 15:46

Wanderer wrote:

lionofludesch wrote:

Wanderer wrote:

Admit it fairly quick and ask for postponement of the penalties.

You can't ask for suspension of penalties for this. You can't set conditions that comply with the SMART rules.

Had one through just today where HMRC suspended penalties!

You're very lucky. I can't see any entitlement.

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Replying to lionofludesch:
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By Rammstein1
14th Oct 2019 15:53

You can get SMART conditions, I did one this morning. Client's wife thought she had cancelled CB so not declared on husbands 17/18 ITR. HMRC will suspend penalties for a year and then clear them if CB declared on 18/19 ITR.

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By lionofludesch
14th Oct 2019 16:06

In what way does that fulfil SMART conditions ?

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By Wanderer
14th Oct 2019 16:36

Which one(s) don't you think it fulfills?

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By lionofludesch
15th Oct 2019 15:19

You know what - I'm not going to say.

I'm simply going to quietly celebrate your success.

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By lionofludesch
14th Oct 2019 13:25

Well, good luck with defending that.

If it's not careless to be unaware that the taxpayers were receiving the benefit, I don't know what is. You asked the question and they still said no. Paid into a joint account ? Either of them could've checked and nedither of them did.

In fact, good luck with keeping that to the rates for carelessness.

Just tell the client to pay what HMRC ask and save on your fees. You don't need the embarrassment of trying to justify their gormlessness.

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By mail.taxperfect.co.uk
14th Oct 2019 13:49

I've had two letters from HMRC recently 'correcting' the Tax Returns for two separate clients to include the Child Benefit charge. They haven't been formal S9A enquiries, so no question of penalties, just interest. And, yes, my Tax Return questionnaires also ask for details of Child Benefit claimed; some clients just seem to ignore this bit.

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By kestrepo
15th Oct 2019 13:04

If your client is paid through PAYE then RTI submissions will have been made showing earning above £50K for almost all of the time that High Income Child Benefit Charge could have applied. This means that the correct information has always been available to HMRC - its just their elbow and posterior have not been formally introduced!! Arguments made on this baiss have shown that if what is owed is returned in full and as soon as possible then I understand that HMRC are unlikely to issue any penalties and in this kind of case leniency is often shown - draw the process out and I would expect the penalties will arrive in full force!

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By SteLacca
15th Oct 2019 16:14

I've had a couple recently, one owing the full HICBC, and one just a small sum. In neither case have any penalties been charged.

In the case of enquiry, you have a chat with them, explain why it wasn't returned (and as I've mentioned elsewhere, the fact it wasn't them that received it tends to be what it turns on) and they pretty much agree there and then no penalties.

I honestly think a tax charge on someone in respect of monies received by someone else is an abomination.

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By pauljohnston
16th Oct 2019 10:56

Get you client to make the payment of all outstanding tax now. He will have interest and late payment penalties as well.

Past experience has shown that quick action can mean that no extra penalty is charged but that is changing.

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By hiu612
16th Oct 2019 11:00

Seen a host of these recently. HMRC are systematically willing to agree everything over the phone, the outcome being 15% penalty and suspended on the basis Rammstein suggests. Pick up the phone and play the game.

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By coolmanwithbeard
16th Oct 2019 11:43

I had one this week where they were separated i had noted this on the itr but have still received a correction. Ho hum. Rejection in the post. Rejection sounds so much better than appeal!

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By Andrew1946
16th Oct 2019 13:37

A couple I know who received the HICB, for their 2 children all living at the same address and both earned above the £50K threshold, he declared it on his SA, she did not. Unfortuantely, her salary was £300 more than his. Check was done by HMRC who then informed her, of the "careless error" and proceeded to make a demand for the unpaid tax amounting to the overpaid HICB plus interest together with the now 100% upfront payment for the 19/20 tax year. Because she was helpful with her response to HMRC telling them of the mistake they only imposed the minimum penalty charge of 15% and because she satisfied the conditions of SMART they agreed to suspend this penalty charge. In the meantime, he had to notify HMRC and explain the mistake on his SA, for which his over payments were duly repaid with interest. As a previous respondent has written, a case of the elbow not being connected to the hand for both the couple and HMRC!

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Replying to Andrew1946:
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By lionofludesch
16th Oct 2019 13:46

Said it before but we're now nearly 30 years on from Independent Taxation and we still can't decide whether we're taxing folk - if you'll pardon the obvious word - independently or as a family unit.

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