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child benefit

Random penalty for failure to declare child benefit

18th May 2018
Tax writer
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What is the penalty for failing to notify HMRC that your family has received child benefit, and hence you have a potential personal liability to the high income child benefit charge (HICBC)?

That depends on the judge who hears your appeal in the First Tier Tribunal (FTT) – two recent cases arrived at very different answers.

What is the HICBC?

It is a charge (not a tax) which came into effect on 7 January 2013, which applies if all of the following exist for the tax year:

  • Your income for a year is in excess of £50,000;
  • Either you or your partner received any child benefit after 7 January 2013; and
  • Your income is higher than your partner’s.

The facts

For James Robertson (TC06410), his wife received child benefit in three tax years: 2012/13 to 2014/15. Robertson was earning in excess of £50,000, which meant he would be subject to the HICBC. He was not within self assessment, as all his income was taxed under PAYE.

David Lau (TC06463) was in a similar situation: he too was a PAYE taxpayer whose wife received child benefit, and he first began to earn more than £50,000 in 2013/14.

HMRC wrote to both taxpayers telling them that they had failed to register for self assessment as required by TMA 1970 s7 and that assessments would be issued under TMA 1970 s 29 to collect the HICBC.

Robertson asked for any HICBC due to be coded out under PAYE. HMRC wrote back saying it could only be collected via self assessment. This is not strictly true – see Reg 14B of the PAYE regulations.

In early 2017, HMRC issued assessments, together with notice of penalties: £528 for Robertson and £155 for Lau. Both men appealed, and the cases came before the First Tier Tribunal (FTT), Robertson in York and Lau in Aberdeen.

Was a penalty due?

Both judges quickly concluded that a penalty was due. The exemptions (in TMA 1970 s7) from having to notify chargeability to tax, such as all of an individual’s income being dealt with via PAYE, only apply if… “(c) the person is not liable to a high income child benefit charge”.

Neither taxpayer had a “reasonable excuse” for not notifying chargeability – the HICBC had received wide publicity and HMRC had undertaken a substantial awareness campaign. Our old friend the reasonable taxpayer on the Clapham omnibus would have been aware of the obligation.

How much penalty?

The amount of penalty due is measured as a percentage of the “potential lost revenue” (PLR). This is defined as “so much of any income tax to which the appellant is liable in respect of the tax year as by reason of the failure is unpaid on 31 January in the year following the tax year”.

Here is where the two judges differed. The judge hearing Robertson’s case had concerns over the validity of the assessment and came to the conclusion that without a valid assessment there could be no PLR and therefore the penalty was cancelled.

Lau’s judge disagreed with that rationale, pointing to the word “liable” in the definition and quoting a 1926 Court of Appeal decision that “liability does not depend on assessment”. She affirmed that the PLR was the amount of HICBC not paid by 31 January and upheld the penalty.

Were the assessments valid?

Neither taxpayer had appealed against his assessment, and in both cases the tax had been paid.

The judge in Lau’s case did not examine the assessment’s validity since – on her view of how PLR is computed – she did not need to.

Robertson’s judge did examine it since – on his view – it mattered very much. His reasoning went as follows:

  • HMRC can assess under TMA 1970 s 29 when an officer discovers that income which should have been taxed has not been. The judge put emphasis on the word “income” and asked what, if any, income had not been taxed. 
  • The HICBC is expressed as being a “charge to income tax”, rather than a tax on any underlying source of income. The only undeclared “income” anywhere in sight is the child benefit. Since this benefit is specifically non-taxable, and it belongs to Mrs Robertson, it can’t be treated as a source of taxable income for Mr Robertson.
  • Based on the above, there was no income, so no discovery could be made that income had been insufficiently taxed.

In any event, the judge suggested (referring to the case of Tooth which was a big defeat for HMRC) that, given HMRC clearly knew Robertson owed HICBC back in 2013, the assessments made in 2017 were probably “stale”. Either way, the assessment was invalid and – in the judge’s view – led to a lack of PLR for penalty purposes.


As it stands, there is confusion over the penalty for non-declaration of liability to HICBC. Neither of the FTT judgements are binding on future tribunals, which could legitimately go either way. This leaves a potential loophole.

If your only exposure to self assessment is an HICBC charge, there is doubt whether HMRC can assess it directly under TMA 1970, s 29, and a separate doubt whether they can charge a penalty for failure to notify chargeability.

HMRC can, of course, issue you with a notice to file under TMA 1970 s 8 and oblige you to self assess by completing a self assessment return, but that’s another can of worms which I have discussed elsewhere.

Don’t expect this situation to last. Either HMRC will appeal Robertson, or the government will amend TMA 1970 s 29 with retrospective effect, or possibly both.  

Replies (3)

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By Matrix
18th May 2018 14:48

Or maybe the government will come up with a way to send out assessments contemporaneously so as to avoid penalties for these men who missed the bus and to avoid spending taxpayers' money appealing such cases.

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By SteveHa
18th May 2018 16:21

I actually think that the appeals themselves may have been flawed. The only reference to HICBC in S.7 is, as quoted, S.7(3)(c). This is, very specifically, an exclusion from having to notify.

As highlighted, HICBC is not tax, but is a charge. As such, it is not caught by TMA S.7 (1), and so no obligation existed in the first place, and penalties could not be charged.

Though I could be wrong.

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By moneymanager
21st May 2018 17:48

We could always reintroduce some sanity to the tax code, a kind of "funeral pyre" for daft rules.

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