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HICBC: Taxpayer refused to believe HMRC’s advice

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An employee who was required to file tax returns solely to pay the high income child benefit charge couldn’t understand why this was the case, so he failed to file on time and incurred penalties.

25th Jul 2023
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HMRC wrote to Benjamin Cooke on 19 September 2014 warning him that because he had income over £50,000 the high income child benefit charge (HICBC) charge may apply to him. HMRC wrote to him again on 9 January 2019, along the same lines, (see paras 60 – 61 of the FTT report).

Cooke did not deny receiving these letters, but the significance of them clearly passed him by as he did not realise that he had to register for self assessment and complete tax returns for the years 2016/17 and 2017/18 in order to declare his liability to pay the HICBC. 

Assessment lands

It was only when HMRC issued an assessment for £1,651 in relation to the 2016/17 tax year on 8 February 2019 that Cooke was spurred into action. He paid the assessment and believed that was the end of the matter.

His wife also ceased her child benefit claim on 26 March 2019.

However, this was just the beginning of Cooke’s troubles with HMRC, as he was still required to submit tax returns for the tax years from 2016/17 to 2018/19, when his income exceeded £50,000 and his spouse received child benefit.

HMRC issued paper tax returns for 2016/17 and 2017/18, but as he registered for electronic communications from HMRC on 10 April 2019, the notice to file a tax return for the later year was issued electronically.

Calls to HMRC

Cooke was clearly distressed and confused by the requirement to complete tax returns.

The FTT report (paras 70- 74) includes extracts from the transcripts of Cooke’s calls to HMRC on 6 March 2019, 13 July 2019 and finally on 10 December 2019. He also called HMRC on 7 August 2019 because he hadn’t received the code to allow him to log on and complete the outstanding returns, but no transcript was published for that call.

Cooke believed that because the child benefit claim had ceased and he had paid the assessment for 2016/17, there was no need to complete the tax returns. He couldn’t understand why the system required him to submit tax returns for the earlier years, so he took no further action until 18 November 2020 when he called HMRC again following receipt of a £300 penalty for a six-month delay in filing his 2017/18 tax return.

He filed all the outstanding tax returns in January 2021.

Late filing penalties

HMRC issued penalties of over £3,000 to Cooke for the late filing of three tax returns, but later cancelled £900 of daily penalties relating to the 2017/18 return. Cooke appealed against all of these penalties to the FTT and represented himself at the tribunal hearing.

Cooke also had to pay late payment penalties and interest on the outstanding tax, which he did not appeal against.  

No sympathy

The FTT judge had little sympathy for Cooke.

He concluded that Cooke’s initial belief that paying back a sum of money to HMRC would absolve him from having to pay the penalties, was not a reasonable belief. Hence Cooke did not have a reasonable excuse for filing these tax returns late.

The appeal was dismissed, and the penalties were upheld.

Change is coming

This case illustrates the inadequacy of using the tax system to claw back income from a person who didn’t receive it, using the most complex mechanism possible, ie self-assessment tax returns. 

The government has belatedly realised this is a problem, as on 19 July Victoria Atkins MP, financial secretary to the Treasury, announced that in the future taxpayers will be able to pay the HICBC through their PAYE tax code, and won’t have to register for self assessment just to pay the charge.

The Association of Tax Technicians (ATT) has welcomed this change, which they point out has been the cause of confusion for taxpayers since 2013.

Jon Stride vice Chair of ATT’s technical steering group, said: “The current HICBC compliance system creates unnecessary administration for taxpayers and HMRC alike. We look forward to receiving further details of the proposed changes and urge the government not to delay issuing draft legislation to enact the change for consultation.

“At a time when HMRC are struggling to cope with demand, a simplification and reduction in the number of tax returns required would be a blessing for all concerned.”

Replies (12)

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By Hugo Fair
25th Jul 2023 19:56

I've pulled on my clod-hopping boots, so I'll jump in ...

Why is a 'benefit' being administered by HMRC rather than DWP?
I know that's not technically what's happening, but it equates to the net result (and causes chaos).

Mind you, he says now splashing about in the mud, I don't understand why the benefit isn't means tested in the first place (and, like most benefits, based on 'household income').
If it's a universal right (a phrase I dislike) then HICBC shouldn't be needed; and if it's a benefit for social levelling then families (with whatever number of parents) shouldn't receive amounts they don't need (which must be what's believed if some of it results in more tax having to be paid).

Having said which, it will undoubtedly be an improvement when HICBC can be paid through the PAYE tax code ... but is this an opportunity missed to sort out the fundamental inequities of CB?

Thanks (5)
Replying to Hugo Fair:
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By rmillaree
26th Jul 2023 10:27

"I don't understand why the benefit isn't means tested in the first place (and, like most benefits, based on 'household income')."

It is means tested - we do however treat individuals like adults and expect them to monitor their income levels and pay back when not eligible. The reality is no one at the start of the year knows what they will earn next year and we give peeps te option to claim and pay back later.

Most of the problems here have been due to the appaling communication of the fact that this is a means tested benefit ! the sa mechanism of repayment is something of a red herring here. albeit i woudlnt agrue if repayment was moved elsewhere - i unlike some peeps face facts that calculation of what needs to be repaid is posibly best done as it is at present within sa - simple mechanical job done (if one chooses to claim benefit in the fisrt place)

"Having said which, it will undoubtedly be an improvement when HICBC can be paid through the PAYE tax code"

Well it generally can be anyway !!!!- if only reason peeps are within sa is for this then they simply submit sa return in good time and get liability coded out !

Thanks (1)
Replying to rmillaree:
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By Hugo Fair
26th Jul 2023 13:01

You caught me out again ... being imprecise (nay failing to say what I meant):
"I don't understand why the benefit isn't means tested in the first place (and, like most benefits, based on 'household income')"
... my emphasis was meant to be on the second clause - I should've lost the brackets!

True state benefits used to be (and most still are) based on 'household income' - which has its own difficulties (re the itinerant partner who sometimes lives and, unpredictably, sometimes doesn't) in the same household.
They are also typically based around those earnings in the previous 4 weeks ... so can jump around a bit, but don't need to go anywhere near PAYE.

The biggest inequity with CB is that the benefit decreases if a single parent exceeds the earnings threshold, but not until two parents exceed twice that ... for potentially exactly the same children (aka beneficiaries).

BTW re: your "(if one chooses to claim benefit in the first place)" ... all mothers are advised to register their claim (even if they refuse actual payment) purely in order to get their NI credits. Another farce, but I'll stop there.

Thanks (3)
Replying to Hugo Fair:
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By rmillaree
26th Jul 2023 14:02

"The biggest inequity with CB is that the benefit decreases if a single parent exceeds the earnings threshold, but not until two parents exceed twice that ... for potentially exactly the same children (aka beneficiaries)."

We can get wound up by this perceived inequality - but its not really an inequality overall necessarily.
Its simply taking the rough with the smooth - its not right to moan about something when someone may be scoring similar or more due to that same circumstance.

- facts are high earner (50k+) combined with low earning partner (pa level). Will almsot certainly pay more tax than two mid earners earning same money overall (50kpa each say). So overall they may still have less in their pocket compared to two peeps who dont get clobbered but avoid paying any higher rate tax on their simil;ar household income. Either way the low earning individual with not much to live on who hands across their cash(presuming they pay tax) to peeps on over 50k plus pa earnings is the real loser here !!! .In summary its not any more unfair than independent taxation (which seems quite popular)

Thanks (1)
Replying to rmillaree:
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By JackH
27th Jul 2023 09:31

I am not sure that treating people like adults is a viable proposition any more, judging purely by their general behaviour.

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By richard thomas
26th Jul 2023 09:36

It’s heartening to see how quickly the government and HMRC have reacted to the HICBC problems raised by various cases and in this forum. The Ministerial Announcement that Rebecca provides a link to came only a very short time after the coming into force of regulations allowing coding out of HICBC liabilities.

In fact looking it up I see that regulation 14B of the PAYE Regulations came into force only on 6 April 2023 – no, wait a minute while I put my reading glasses on, it was 6 April **2013**. Still quick by HMRC standards.

What is also amazing is that the PAYE Manual has also already been updated to deal with coding out. (Look at PAYE 14015 and 13150). Oh, it’s been there since at least 2020!

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By rmillaree
26th Jul 2023 10:11

Huh

"This case illustrates the inadequacy of using the tax system to claw back income from a person who didn’t receive it, using the most complex mechanism possible, ie self-assessment tax returns."

Bizarre commentary - this case did its job upholding tax and penalties due - whats the problem with legislation doing the job intended which it did do.

What am i missing - does it not highlight the lack of reponsibility placed on individuals cliaming means tested benefits ? a system whereby peeps self reported whats owed back outside of sa then pleads poverty when caught up later imho would be far worse. The fact that now 99% of peeps dont end up being hauled through the coals proves the system aint broke - peeps just need to take reponsibility whyen they claim means tested benefits end of.

I do concede that means other than sa "might" perhaps be better - but sa does quanify the bill so how are you proposing to quantify the bill Rebecca in the absence of an sa return ? Is that going to be any harder than doing an sa return.

No one is forced to claim this means tested benefit in the fisrt place if they dont want to so crying over an issue that need not be present seems wasted time spent to me - wopuld be non issue if peeps claiming benefits were adults and took responsibilty and followed the rles.

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Replying to rmillaree:
Tornado
By Tornado
26th Jul 2023 13:01

"No one is forced to claim this means tested benefit in the fisrt place"

If I read the case properly, he did NOT claim the benefit in the first place, however I appreciate your endorsement that it is OK for one person to pay another's tax liability and assume it will be OK if I direct HMRC in your direction to pay my taxes.

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By Arcadia
26th Jul 2023 20:31

Many contributors to this forum, used as they are to armed combat with HMRC, and steeped in the lore of the tax system, may not realise the absolute terror that many (most?) ordinary citizens have of engaging with the authorities. Yes, Mr Cooke may have put his head in the sand to some extent, but the vast majority of 'peeps' do not know what self assessment is, do not study tax legislation in their spare time, and believe that if they get a bill in the post, and pay it, that should be the end of the matter. Have we all become so inured to the ridiculously byzantine world of tax we inhabit that we do not realise that common sense went out of the window long ago?

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Replying to Arcadia:
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By rmillaree
27th Jul 2023 08:11

may not realise the absolute terror that many (most?) ordinary citizens have of engaging with the authorities.

I for one as an accountant fully understand - most good accountants understand - we are generally fully here to aid clients so they dont have to worry or think about hmrc if they dont want to - thats our job. Similar to most peeps using hmechanic to fix a car rather than do it yourself and worry if they might kill themselves.

If this person had rung any local accountant the accountant would likely have told them the score in 2-3 minutes and explained why free of charge - this person refused to accept the world is round and ended up with what they deserved.

there are hard core of peeps who hate giving taxpersonages a penny - this person clearly ignored all warnings and came up with theiur own wrong solution. Child benefit is means tested benefit they were not entitled to - hmrc told the person and they did almost everything wrong after that.

If someone tried to fix their own car and had faulty brakes and killed soemone who would be be laying blame at? no one here is saying tax is easy easy ! - the whole issue would have been avoided if these peeps had read then child benefitguidance given to them ref this means tested benefit and stoped claiming at the outset if they knew they had to pay back.

The result is harsh but this person literally did everything they could do wrong in the entire process to end up where they ended up. N

Note for each year return was issued they had received means tested benefit - so the excuse that cos they had paid one year back they could ignore the other years is just ridiculous - tis person clealry made zero attempt at basic maths to work out what they owed - its not hard to work out how much £30pw from 6/4/2016-26/3/2019 adds up to - its waay more than 1651.

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By paul.benny
27th Jul 2023 16:31

Child benefit used to be universal; HICBC is a cack-handed bit of means-testing and so tax-raising.

As has been mentioned, it's based on individual and not household income; it breaks the separate taxation of H&W; couples where one was non-working/low earning and who chose to disclaim rather than have it taxed away lost out on NI credits.

And, as we've seen here, it creates a need for tax returns when not otherwise needed.

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Replying to paul.benny:
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By rmillaree
27th Jul 2023 17:09

" it breaks the separate taxation of H&W"

At the risk of repeating - this is a means tested benefit - means tested benefits have always been based on income of both parties . Whilst the mechanism is via the sa return and they call ita tax charge its clearly a benefit repayment from any practical perspective. Ignore the tax charge label concentrate on what the benefit is called in the fisrt place and it makes complete sense that spouses income may matter.
Getting really technical the spouses income doesnt even come into they are not obliged to tell the oher party what they earn - each individual can ring up hmrc and hmrc wil advise if they the individual need to repay the benefit they as a "household" have claimed.

Without tax return there would still be the need to calculate income to work out whats repaid - no one has posted a beter way of working out income easily than doing an sa return - the formal mechism to get the job done exists in the tax return.

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