HMRC and the Child Benefit Charge

Did you know that HMRC could ask for child benefit payments back under a certain set of circumstances? They can even back date their claim!

In the UK, child benefits exist in many forms – all of which are assigned and calculated based on circumstance and situation. Many of these allocations are based on declared income of the child’s care givers, but, do you know that misallocation due to undeclared income could result in you having to pay back some of your child benefit payments?
Discovery assessments are often used by HMRC when a taxpayer hasn’t declared all of their assessable income, and further tax is due to HMRC. The power of discovery allows HMRC to reopen closed periods of tax assessment, which differs from an ‘enquiry’ which is an investigation into open periods.

One example where HMRC use such assessments is in relation to the High Income Child Benefit Charge (HICBC). This particular tax charge is due when a taxpayer, or their partner, receives child benefit and at least one of them has an individual income of over £50,000. Affected taxpayers should declare all of their income and the total child benefit received on a self-assessment in order to report and pay the tax charge. However a recent tribunal case has set a different precedent.

The case of HMRC vs Wilkes in May 2021 came about as a result of an appeal by Mr. Jason Wilkes against HMRC’s issuing of discovery assessments to recover his and his wife’s HICBC from tax years 2014-15 and 2016-17. According to the first-tier tribunal overseeing the case, HMRC have no power to impose HICBC charges by means of Discovery Assessments. While this case applies to the Wilkes’, the precedent it sets is potentially applicable to everyone who has been issued with discovery assessments by HMRC trying to reclaim HICBCs.

HMRC are currently in the process of appealing this ruling.

The upcoming Finance Bill 2021/22 however, is proposing to allow HMRC to retroactively collect sums using a discovery assessment thanks to new provisions which have been added to the bill. These provisions will apply to HICBC, Gift Aid donations and certain pensions tax charges, though it could also potentially be used to collect any income tax due but not yet assessed. Taxpayers who have received HICBC discovery assessments and appealed before 30 June 2021 under similar grounds as those used in the Jason Wilkes case, will be settled under the legislation as it currently stands.

If you think you may be affected, or you’re looking for more information or advice on discovery assessments, get in touch with our expert Helena at Ezyco Accounts today.


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