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child on number mat | accountingweb |  Another HICBC case
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HICBC controversy continues with another tribunal

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With every high-income child benefit charge case brought to court costing more than what was at stake, Ray McCann thinks HMRC needs to find a more sensible approach.

23rd Jan 2024
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One of the more controversial pieces of legislation introduced in the past decade has been the high-income child benefit charge (HICBC). Since its introduction in 2013, during the coalition government’s austerity period, it has resulted in more and more individuals being dragged into the self assessment tax return system solely to pay any HICBC due. At the last estimate this was close to 200,000 people, forcing HMRC to find new ways to enable those liable to the charge to settle what they owe without the need to complete a self assessment tax return.

The HICBC divides opinion in numerous areas, not least between those who believe in universal unrestricted benefits and those who believe that benefits should be restricted to those on low income. The policy is to recover child benefit from those on higher income, currently set at a starting point of £50,000. One obvious problem is that high income depends on where you live and your particular circumstances. In the light of objections, the government went no further than tweaking the income limits so that the charge tapers until income of £60,000 at which point the child benefit is fully taxed.

Poor implementation

Reasonable people can disagree over the policy, but it is difficult to find anyone who is content with what we have in terms of how HICBC was implemented. There have been far too many traps for the unwary and hundreds have fallen foul of HMRC penalties due to their failure to register for self assessment and pay the charge. We have seen tribunal decision after decision often involving trivial amounts (one recent case involved a penalty of under £200) and typically HMRC has been the loser. 

Even the choice to avoid the charge by not claiming child benefit carried unannounced risks with damaging consequences to state pension entitlement due to the loss of national insurance contribution (NIC) credits for periods where the individual was not working, an issue the government is now having to correct.

Two-income data fail

HICBC has also been heavily criticised for the way two-income families, where both earn less than £50,000, are treated compared to a single parent earning more than £50,000. As has been well publicised, two earners on £50,000 a year, so a combined income of £100,000, lose no child benefit whereas a single earner on £60,000 loses the entire child benefit paid. At the time HMRC claimed that this was unavoidable since they had no right under data protection to check the income position of a partner of someone in receipt of child benefit. Many tax advisers were surprised by this given the efforts HMRC had made and continues to make to gain access to data in almost every other context.

The poor policy design did not just affect taxpayers – HMRC’s efforts to recoup unpaid HICBC came unstuck when the tribunal concluded that HMRC could not use its discovery assessment powers in S29 TMA 1970 to recover unpaid HICBC from individuals who had failed to pay the charge for earlier years (see the decision in Jason Wilkes [2021] UKUT 150 (TCC)). In contrast to the years of inaction on the part of the Treasury to address the criticisms of the HICBC, S29 was quickly amended with retrospective effect to ensure that HMRC could pursue the unpaid HICBC. This created an unprecedented situation whereby taxpayers would only be protected from the retrospective amendment of S29 where they had appealed a discovery assessment on or before 30 June 2021.

Rightly rejected

The recent case of James Fera (TC08985) is a good example of what taxpayers in this situation faced. HMRC should never have taken the case to the tribunal since it was quite clear that the taxpayer had appealed. HMRC’s objection was that he had not specifically referenced the invalidity of the discovery assessment in his appeal despite Wilkes being widely publicised. It was a very poor position for HMRC to take, which the tribunal rightly rejected.

Changes required

So how do we move forward? There has been some suggestion that the Chancellor will address the single-parent family position in the March Budget. But other changes are required. The income limits should be increased and some payments that are currently treated as income should be excluded. Consider the single parent who is paid a £50,000 salary and who is transferred to another office. If the employer pays excess travel costs the individual will be economically worse off since the earnings will then exceed £50,000 and the HICBC applies.

But HMRC also needs to adopt a new compliance strategy, every HICBC case brought before the tribunal has cost more than what was at stake. HMRC needs to take a broader approach to when taxpayers have a reasonable excuse and stop attempting to include within the statutory provisions requirements that are not there, as was the case in Fera.

Public awareness

It is not unreasonable for HMRC to consider that public awareness of HICBC is now sufficiently high that ignorance of the law is not an excuse. However, those who fail to pay the charge should receive help to get it right with penalties reserved for habitual failure. And since HMRC can now recover HICBC right back to when the charge was introduced, without change we will not have seen the last of the expensive tribunal cases.

Replies (23)

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By FactChecker
23rd Jan 2024 16:44

I can't get beyond the "HICBC divides opinion in numerous areas, not least between those who believe in universal unrestricted benefits and those who believe that benefits should be restricted to those on low income" aspect.
I'm with the latter group ... but either would be preferable to the frankly insane hybrid where we've ended up (with the attendant clawbacks and, per example above, disincentives to move job).

Would someone like to re-visit the original policy objective and explain it to the Treasury wonks, before they attempt any further tinkering.

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Replying to FactChecker:
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By rmillaree
24th Jan 2024 10:37

totally agree the amount of nonsense that is being spewed in this area is ridiculous.

Facts are

hmrc/child benefit agency have been beyond stupid not getting confirmation from claimants that they were aware of the new rules and that they can confirm their paretner was also aware of the new rules.

hmrc are beyond stupid for taking on this case if its clear thats they did so on the wrong basis.

with regard to the issue of means tested benefits - why the fuss , its not complicated if you claim a means tested benefit you should take the responsibility to follow the rules. I do have some sympathy for those that were clueless ref changes here - hmrc should have covered their back bearing in mind peeps had no reason to suspect the rules would change. If this person gets away without havijng to pay anything back more the fool hmrc - its pretty obvious they needed to tell claimanats the score and that teh claimants knew the knew the score

ref this bit bit the article author

" The income limits should be increased and some payments that are currently treated as income should be excluded. Consider the single parent who is paid a £50,000 salary and who is transferred to another office. If the employer pays excess travel costs the individual will be economically worse off since the earnings will then exceed £50,000 and the HICBC applies."

sorry but imho what utter nonsense - i am struggling to think of a more contrived example . the person with 50k is being given taxpayers money from someone without kids earning 20k per year - the facts are no one earning 50k pa NEEDS to be given tax perk at the expense of soemone on below half their earnings. Is it unfair if anyone pays highenr rate tax on earninsg - hmmm.
Note this individual has the easy choice of topping up their pension to avoid the charge
in what way are non allowable excess travel costs not the same as salary - i dont even get teh point here - if its allowable claim woudl be made on tax return - if its not alowable it always was salary in the fisrtb plafce practicably speaking. Does te op think taxpayer should subsidise 10k pa train ticket when someone chooses to live in landsend?

We have individual taxation and responsibility with benefits (as household unit) thats pretty simples and straightforward - the hicbc aint perfect by any means but i doubt any alternative will be much better overall bearing in mind the hassle of change - hopefully by now everyone knows the score - although i still suspect hmrc are defficient ref warnings - at least those who claim now cant say they signed up under different rules !!

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Replying to rmillaree:
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By Mr_awol
24th Jan 2024 19:24

rmillaree wrote:

sorry but imho what utter nonsense - i am struggling to think of a more contrived example .

I agree the excess travel is a weird one. Having said that, another fairly contrived example but one i have seen (had a client ranting at me) and that may arise more often than we think:

Individual earns £65k and has two children with current partner. Also has two children with former spouse. Pays £700/month child maintenance (conveniently calculated to represent £15k of gross income - these aren't the exact figures but are very close as it happens) and has to repay all CHB. Former spouse earns £50k. and receives full CHB.

In essence, one party is left with net income at the equivalent of £50k and no CHB, their former spouse the equivalent of £75k with full CHB. I pointed out it's a very specific scenario but find it hard to argue that it isn't wholly unfair.

rmillaree wrote:

We have individual taxation and responsibility with benefits (as household unit) thats pretty simples and straightforward - the hicbc aint perfect by any means but i doubt any alternative will be much better overall bearing in mind the hassle of change - hopefully by now everyone knows the score - although i still suspect hmrc are defficient ref warnings - at least those who claim now cant say they signed up under different rules !!

Do we really have individual taxation if my tax bill is affected by the actions, income, or benefits claim of my wife, and she is required to disclose to me matters about her income - both in terms of CHB she is claiming (assuming im the higher earner) and her own income (so we can work out who earns the most)? I appreciate there is a joint responsibility to not claim benefits if you have a partner earning above various thresholds - but CHB isn't really seen as a 'benefit' in that sense and there is no periodic renewal process, annual declaration, etc. If the allowance were based on annual declarations, and were based on household income, then THAT would be joint responsibility for benefits claims. What we currently have is a stealth tax charge based upon something that the taxpayer 'at fault' may or may not have any knowledge of (we all have those clients who keep very separate finances im sure).

Also dont forget the HICBC applies to persons who live together in some sort of relationship, not necessarily long term or marriage. It may be rare for new partners to move in together very quickly when one/both have children but we may not just be talking about couples who have been together for years, married, jointly own the home, etc. If someone moves in with their new boyfriend/girlfriend they might not be at the stage of being fully open about 'exactly' how much they earn.

Scrap the whole thing - or make the threshold £100k joint income - or better still £200k joint income. £200k would be a level at which the benefit received wouldn't be too significant and it would be quite tough to argue it was needed, or 'unfair' to lose it.

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Replying to Mr_awol:
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By rmillaree
24th Jan 2024 19:53

In essence, one party is left with net income at the equivalent of £50k and no CHB, their former spouse the equivalent of £75k with full CHB. I pointed out it's a very specific scenario but find it hard to argue that it isn't wholly unfair.

well thats because one with the exra cash pays for the child upkeep and needs the extra cash - thats obviously not an obviously unfair situation to me. Infact keeping the handing over of cash out of the tax ssytem makes perfect sense imho

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By listerramjet
24th Jan 2024 09:41

The whole point of child benefit was that it was a universal “benefit” direct to the mother. It was introduced in 1977 to replace Family Allowance, which was itself started in 1946 following Beveridge. The stupidly named HICBC is a good example of the low quality of politicians. In this case George Osborne. But then “austerity” was a prime example of saying one thing whilst meaning another. And given it wasn’t austere and that Osborne presided over increased government spending, like ever other Chancellor before or since, it was a silly political move that gave his opponents several sticks to beat him with. You might say far to clever for his own good!

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By mkowl
24th Jan 2024 09:44

Are the ITV drama people busy ?

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By HLB
24th Jan 2024 09:52

More taxation by stealth. The £50k lower limit and £60k higher limit have not changed since 2013. Based on RPI the lower limit would be £70k.

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By Anthony Horsfield
24th Jan 2024 09:56

It is also ridiculous that if the parents are not married and the mother receives the child benefit and the father is the higher rate tax payer, then the charge does not apply. Hope I have got this right!

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Replying to Anthony Horsfield:
By ireallyshouldknowthisbut
24th Jan 2024 09:59

Marital status is irrelevant. Or indeed who's children they are.

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Replying to Anthony Horsfield:
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By Self-Employed and Happy
24th Jan 2024 10:06

Erm...

I'm pretty sure you need to brush up on that area.

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Replying to Self-Employed and Happy:
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By Not Anonymous
24th Jan 2024 10:13

Self-Employed and Happy wrote:

Erm...

I'm pretty sure you need to brush up on that area.

Yes, you no longer even need to be a higher rate payer to be caught by HICBC!

Time for a new name for it??

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By GDavidson
24th Jan 2024 10:10

I suspect that many of those being paid over £50,000 and not registering for self assessment are not getting the benefit of higher relief on their pension contributions.

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By spotty
24th Jan 2024 12:16

Perhaps there needs to be a rethink. Make it like the state pension, always taxable. It would be easy enough for the information regarding who has Child Benefit to be given to HMRC (as state pension details are) and it to be just taken off the personal tax allowance each year in coding if they do not submit a tax return. Obviously those who earn over £100K would then have to submit a tax return each year as they have no personal allowance. This would then solve the problem of women missing out on state pension as they are not registered. Yes this would hurt those who pay tax at 20%, but there must be a way round that, perhaps giving all those who get it an additional personal allowance so it ends up tax neutral for BR tax payers. Just ideas to work on.

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By WallyGandy
24th Jan 2024 14:18

Hi Ray- excellent article. Thank you. And I agree with all respondents.

However
Your headline needs an edit.... "HMRC... find a more sensible approach"

They stopped doing THAT years ago :-) Never to start again I guess.

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By matchmade
24th Jan 2024 14:54

The whole National Insurance system that introduced ideas like universal benefits has been shot to pieces by successive governments, and far too much emphasis is placed on means-tested benefits. For example:

- "unemployment benefit" or Jobseeker's Allowance, is now a pittance, impossible to live off (you get nothing towards your rent, for example), and has become just window-dressing to pretend that ordinary working people get anything of real value from their Class 1 NICs, besides state pension entitlement. Either unemployed people should be offered proper income protection insurance against the risk of unemployment, on say the Danish model, or JSA should simply be abolished and replaced with Universal Credit, for which you're either eligible or not. Ordinary people with any kind of assets above £6000 will be told they are now expected to take out private unemployment insurance instead.

- Widow's Benefit used to be worth something, and would last until your children were 18, and provided a degree of financial security and protection after the catastrophe and chaos of losing a partner. Now if your spouse dies, you get 18 months of virtually nothing, after which single parents are left to fend for themselves unless they are obviously destitute. Again, people are being pushed to purchase expensive private provision, instead of providing some insurance against these disasters by making a relatively small charge on the working-age population as a whole. Citizens without children are expected to agree that a proportion of their taxes goes towards educating other people's children until they are at least 18, out of a sense of the common good created by universal education, but if those same children have the misfortune to lose their mother or father through death, somehow this sense of communal obligation and common decency disappears.

- Child Benefit is another example: as the Child Poverty Action Group point out, the benefit has fallen by 20% in real terms since 2010 (so a family with 2 children now get £500 less p.a.), the uptake rate has dropped from 96% to 91% as more and more people on higher incomes have elected to give up their entitlement, Universal Credit offers no extra help if you have more than 2 children, etc etc. The HICBC should be abolished as a ludicrous overcomplication, and the £1 billion-plus cost of this and increasing Child Benefit back to its 2010 real level (at least) should be recouped by raising the higher-rate tax rate. Again, the cost of rearing children should be borne in part by the citizenry as a whole, just as it pays for education and a large chunk (still, despite fees and the loss of maintenance grants) of what it costs to send young adults to university. The insidious trend to ever more means testing needs to be resisted: it adds immense complexity, fraud and waste, reduces takeup, leads to more people who give up claiming and/or fall through the cracks in the system, and perhaps most importantly, it atomises people and diminishes their sense of being part of a common culture and national purpose.

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Replying to matchmade:
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By rmillaree
24th Jan 2024 17:11

thats a very biased personal opinion you have hear - its all about what you think is right me me me.

I think plenty of peeps are happy that beenfits are means tested - as that does allow them to be targetted to the most needy.

"Again, the cost of rearing children should be borne in part by the citizenry as a whole"
Huh - thats exactly how it is - bearing in mind the fact that people without kinds contribute towards school costs medical care - free childcare so the parents can have time away from their kids - and the cash handout that is child benefit - universal credit if incoem is low - not a bad deal imho, should we give peps cash and then take em out to dinner too and buy them new trainers at xmas?

i think those out working that havent gone to university will be pretty happy that they have to pay less extra tax to fund someone to go as studnet pay something - cant see anything fairer than the direct beneficiary paying a % of the costs if they are lucky enough to earn a decent crust afterwards.

I think plenty would agree we could do more and be better and make it more simple and treat some marginalised better but with limited money and plenty of peeps happy to suck it out of the system without paying back i think your ideal world stuff is not gonna happen in the real world and is somewhat fundamentally jugmental that you think some peeps should directly support others much beter off than themselves - that sems highly illogical stance to me.

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Replying to rmillaree:
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By matchmade
25th Jan 2024 13:00

It sounds like you think everything should be means-tested, which basically means abolishing the National Insurance system and returning to a mix of private and charitable health care. So, are you happy with:

- no NHS: universal health care free at the point of use is an outrageous waste of money when so many people can afford to pay and should be taking out private health insurance. The US is a shining example of good efficient practice in this area.

- no state pension, pension credit, or social care services: old people should be assessed for Universal Credit if they feel they are poor (but made to sell their homes and move into rented housing if they have too much capital, and spend that money before they become entitled to UC), and the rest of us should take the responsibility of saving for our own pensions and our infirm old age.

- no free state education and certainly absolutely nothing for FE, HE or university students: parents should pay if they want their children to be educated, unless they qualify under means-testing, and students should pay every penny for the luxury of higher education. Of course some parents will choose not to educate their kids because they claim they can't afford it, but no matter: if the parents are irresponsible, it's just tough luck on the kids. Others will only send their kids occasionally, because people's incomes rise and fall, and you can bet any means-testing system - Universal Credit for example - is never going to be flexible enough to deal with people whose incomes vary considerably from week to week or month to month.

- no childcare assistance to help and encourage mothers in particular into work, no child benefit, no maternity benefit, and certainly no widows benefit: what a ridiculous waste of money, giving parents some stable source of income without means-testing all of their income and capital! How silly to think that parents in employment might expect to see some benefit for paying their national insurance contributions every month, no matter what their incomes! Everyone should choose whether or not to take out private insurance against a death in the family or indulging themselves in the unnecessary luxury of having a child. Surely only the most needy or cases of literal starvation should involve any claim on taxpayers' money.

I think you need to understand a little more about the history of the modern British welfare state and why we have a national insurance system in the first place, starting from the 1942 Beveridge Report . NICs are not just a tax: the clues in the name. They are meant to be a pooled insurance policy to protect people against possible future hardship, at a much cheaper cost than taking out private insurance, and a method of encouraging people to seek employment because the tax system offers significant contributory benefits as well as penalties, or "something for something", irrespective of how much you earn. Here's a short primer on how the balance between means-testing and a contribution-based approach have changed since the Second World War : https://ifs.org.uk/inequality/wp-content/uploads/2023/01/Why-has-the-UKs....

The British welfare state has always been a fluctuating and often contradictory mix of means-tested benefits and benefits you gain in exchange for being an employed taxpayer. I was simply saying that means-testing can go too far, and definitely has in certain areas, to the point people who pay NICs just view them as another resented tax, of very little benefit to themselves, and cynically view many or most benefit claimants as people who just "suck it out of the system"in your charming words. Is this a healthy way of looking a the world? I think the contribution-based approach still has a role to play and should be defended, especially when all the evidence shows that the more you rely on means-testing, the more this reduces the incentives for people on low-to-middling incomes to save and seek work, and accelerates the relentless growth in income inequality and relative child poverty in the UK . Table 1 in the report I cited, which compares means-tested and levels of contributory benefits in the UK compared with other OECD countries is fascinating and deeply telling.

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Replying to matchmade:
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By rmillaree
25th Jan 2024 14:17

It sounds like you think everything should be means-tested

Not in the slightest - i just think that alot of people think that some things should be means tested.

ref child benefit does anyone earning over 50k need a freebie when someone on much lower earnings is paying for it then i would say no.

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Replying to matchmade:
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By rmillaree
25th Jan 2024 14:24

, and cynically view many or most benefit claimants as people who just "suck it out of the system"in your charming words.

are you denying that plenty of people suck it out the system ?

note i didnt use the term "many or most" so not sure why you need to change what i said into something different.

- just tha there is plenty of people who do - thats pretty much fact - for the record i would not necessarily put that at high % of overall claimants - but in terms of numbers its clearly plenty.

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By Husbandofstinky
24th Jan 2024 15:18

And multi millionaire Jagger's and Branson's of this world still get their winter heating allowance.....

Child benefit should be universal imo with that in mind

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By moneymanager
24th Jan 2024 17:27

JUST SCRAP IT.

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By Mike Warburton
24th Jan 2024 17:28

Well said Ray. I agree entirely.
I am sure you still have influence in high places so please tell them.

Mike
Ps I still remember the great talk you gave many years ago at our annual tax conference and likening the risk of transactions in securities as the only thing visible from space apart from the Great Wall of China, but that was before google maps of course!

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Replying to Mike Warburton:
Ray McCann
By Ray McCann
25th Jan 2024 13:15

Hi Mike, nice to hear from you I’m afraid the only voices HMRC hear these days are their own echo. It would be nice if there was more evidence that they listened, alas…

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