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HMRC cancels penalties for parents

17th Jun 2019
Tax Writer Taxwriter Ltd
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HMRC has cancelled 6,000 penalties issued to parents who failed to notify the tax authority that they had to pay the high income child benefit charge.

The high income child benefit charge (HICBC) is designed to claw back child benefit paid to families where the highest earner has total net income in excess of £50,000. The full benefit is recovered through the charge when that person’s income is £60,000 or more.

The professional accountancy and tax bodies warned that this would drag taxpayers into self assessment who would otherwise have their tax affairs adequately dealt with under PAYE. Andrew Hubbard commented in Taxation Magazine: “There seems to have been a complete disconnect between the political decision to claw back child benefit from high earners and the practicalities of putting that policy into operation.”

Tax v benefits 

Since 1990, we have had a system of independent taxation in the UK whereby each person is taxed independently rather than, for example, a wife’s earnings being taxed as part of her husband’s income. However, state benefits such as universal credit are awarded on the basis of the income of the family. This may be why the HICBC was designed to claw back child benefit from the highest earner in the family, rather than from the benefit claimant, who is usually the mother of the child and also tends not to be the highest earner.

Although HMRC is the body which administers child benefit and thus knows who the child benefit claimants are, it can’t tie those claimants to the tax records of their higher-earning partners.

Failure to notify

From the point that the HICBC was introduced in January 2013, thousands of parents have been obliged to notify HMRC that they had a liability to pay the charge. Although there was good publicity about the HICBC at first, the awareness quickly dropped off. Taxpayers who were earning under £50,000 in 2013 were not prompted to notify HMRC of a liability to pay the HICBC when their income crossed that threshold in a later year.

As a result, some 35,000 parents received penalties for failing to notify their liability in the tax years 2012/13 to 2015/16. A small number of those taxpayers challenged that penalty at the first tier tribunal, with mixed results.

James Robertson won his challenge to the penalty on the basis that the child benefit was received by his wife, so he had not failed to declare any of his own taxable income. In fact, child benefit is not defined as taxable income at all and the HICBC is not a tax it is a charge. In Robertson’s case, there was no potential lost revenue (PLR) to assess, so the penalty calculated as a percentage of the PLR had to be nil.

Penalty review 

Following Robertson and many other similar cases, HMRC decided to review all instances of failure to notify penalties being issued in relation to the HICBC for the years 2013/14 to 2015/16. However, HMRC said it would not refund the penalties unless the taxpayer had a reasonable excuse for failing to notify.

Taxpayers were not required to take an active part in this review process as HMRC determined that a reasonable excuse was in place if these conditions were met:

  • the claim for child benefit was made before 7 January 2013;
  • in 2013/14 or later year, the higher earner’s income subsequently increased above £50,000 making them liable to the HMRC; or
  • the higher earner’s income was already over £50,000 and they were not in self assessment but started a relationship with someone who was claiming child benefit in 2013 to 2016; and
  • the taxpayer did not receive any communications from HMRC about the HICBC.

Based on these criteria, HMRC has cancelled 6,000 penalties and made refunds in 4,885 cases of an average of £368 per taxpayer. HMRC has said that all refunds have now been paid out so taxpayers do not have to contact it for a refund.

No cancellation

Where one of the parents or partners has been in self assessment since 2012/13, the penalty for failure to notify won’t be cancelled as the self assessment return draws attention to the need to declare the HICBC.

Where the HICBC is due for 2016/17 or a later year, the higher earning parent must tell HMRC about their liability. Also, any parents who have claimed child benefit since January 2013 are deemed to know all about the HICBC, which is really not the case.

Replies (4)

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By nessy4646
17th Jun 2019 10:51

About three years ago my husband was earning £51k and part-way through the financial year he took a job on that paid just over £61k.
HMRC demanded back all of the child benefit that had been paid. Seems very unfair seeing as we didn't know this new job was coming; it should be taken into account that for some of the year we only would have had to declare we were only £1000 over.
I cancelled the child benefit as soon as he took the new job but was a shock that the old job was irrelevant to the child benefit part of the SA.

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By [email protected]
19th Jun 2019 00:49

The administration of this charge needs some refining. I claim/receive child benefit for my youngest brother (16), as his legal guardian (both our parents are deceased). This child does not live in my household. My live-in partner has absolutely no parental, legal or financial responsibility to this child nor any financial dependency of the child on my partner. My earnings fall between 50-60k. My partners adjusted net income earnings are higher than mine. You would think legally it is me that is liable to declare HICBC on SATR, however according HMRC it is my partner (as the higher earner) that has to carry the declaration. HMRC say they focus solely on assessing the charge based on the incomes into the household of the claimant...regardless of any legal responsibilities or dependency any individual has to the taxpayer liability supposedly falls to. I am finding this very difficult to reconcile in my mind nor does my partner understand and inclined to challenge their stance - would welcome any thoughts on this or hear from anyone that has experienced a similar encounter/predicament.

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By SteLacca
19th Jun 2019 08:45

I should think HMRC do cancel penalties for failing to do something that the liable party may not be aware is even an issue.

Many couples live financially independent lives. If a higher earner fails to declare child benefit that they did not know their partner was claiming, then penalising them for the failure is grossly unjust.

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By chicken farmer
30th Jul 2019 11:53

Rebecca's article was published 17 June and since then the Upper Tribunal have overturned the FTT's decision in Robertson in respect of whether there was any 'potential lost revenue'. Both Tribunals however agreed that Robertson did not have a reasonable excuse for failure to notify liability. Although Mrs Robertson had been claiming Child Benefit prior to the introduction of the High Income Charge and Mr Robertson was not within Self Assessment, he does seem to have been already over the £50K threshold so this Revenue 'concession' would not have assisted him anyway.

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