After a recent tribunal ruled that HMRC could not pursue a man for back taxes it claimed he owed, they are facing calls to refund thousands of people who paid the tax in similar situations.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
How the child benefit tax works
With child benefit, you are eligible to receive £21.15 a week (£1,100 a year) for your oldest child, and £14 a week (£728 a year) for each additional child. If either member of a couple has an adjusted net income of more than £50,000 this is recouped via the tax system.
The high income child benefit charge (HICBC), introduced in 2013, is 1% of the amount of child benefit for each £100 of income on a sliding scale between £50,000 and £60,000. If you earn over £60,000, then the charge is 100%. It needs to be paid by whoever earns above the threshold, not whoever receives the benefit. You can choose to opt out of receiving the benefit payments and avoid any possible complications, but there are benefits when you claim.
The problem at hand
The issue occurs when the person responsible for paying the charge and the one who receives the benefit are not the same but are responsible for tax on a benefit they did not actually receive. If you knew nothing about the charge or perhaps received a pay rise or another work-related benefit like a company car that pushed you over the threshold, HMRC would chase you for payment. Approximately 160,000 people were responsible for non-payment penalties.
The ruling
Recently one of those taxpayers who was chased challenged HMRC’s right to claim the charge for previous years. HMRC pursued him based on the fact his wife had received child benefit between 2014 and 2017. HMRC accepted the man’s claim that we wasn’t aware of the charge but he also argued the process with which HMRC pursued him – their right to “discovery” was unfair in his particular situation. Essentially, discovery allows HMRC to reopen closed periods and issue tax bills for previous ones whenever they see fit.
The ruling on 30 June 2021 stated that the tax department cannot impose a charge based on discovery assessments if the person liable never files a self-assessment tax return for the year in question. This decision could open up the floodgates for people who feel they were unjustly pursued for back taxes.
For any and all tax matters, don’t hesitate to reach out to the professionals at Dental & Medical Financial Services. We specialise in incorporating tax affairs into overall financial plans, so give us a call today.
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