BKL warns that the pain of the High Income Child Benefit Charge (Clawback) is far from over, and considers legal aspects arising from recent cases.
It’s now over five years since the High Income Child Benefit Charge (“HICBC”) was introduced. Broadly, this recovers some or all of any Child Benefit claimed where the annual taxable income of the claimant or of the claimant’s “partner” (i.e., spouse, civil partner or cohabitee) exceeds £50,000.
A problem that is increasingly coming to light is that some people are overlooking the possibility that they might be liable to pay the HICBC.
Many people with straightforward tax affairs whose income is dealt with under PAYE are not routinely required to complete a tax return. But if you are liable to pay the HICBC you are always without fail and regardless of any other circumstances required to be registered for self-assessment. So, towards the end of 2012, HMRC wrote to those of its “customers” who earned over £48,000 and who lived at an address where Child Benefit was being claimed to make them aware of the imminent introduction of the HICBC and to explain what action they needed to take. Usually that was either to simplify life by opting out of receiving Child Benefit (and therefore out of paying the HICBC) altogether, or to register for self-assessment (if they weren’t already registered) so that the HICBC could be collected as part of the Self-Assessment process.
Time passes. There is now a cohort of people who did not receive the warning letter in 2012 (because they were at that time not earning enough to be liable to pay the HICBC) but whose income has now increased to the point at which they have become liable to pay the charge. Any of those people who are not already filing self-assessment tax returns are required to “notify liability” to HMRC. Some of them are in blissful ignorance of that obligation and a rude awakening awaits.
One such was Mr David Lau, the appellant before the Tribunal in Lau v HMRC  UKFTT 230 (TC). He was a PAYE taxpayer. He (or perhaps his wife – it doesn’t matter) claimed Child Benefit for 2014/15 in the amount of £3,884. His income for the year was such that a HICBC of £776 for the year arose. So he should have “notified chargeability” for the year by 6 October 2015. He didn’t, and as a result he was penalised to the extent of 20% of the HICBC.
Mr Lau asserted that he always worked late on a daily basis, rarely read newspapers or watched news on TV and he was not aware of the need to notify HMRC and register for self-assessment until HMRC had contacted him. HMRC hadn’t warned him (as they had warned people in 2012) about the need to do something about the HICBC: so he didn’t think he ought to pay the penalty.
He lost. “Ignorance of the law is not an excuse for failing to comply with it,” said the Tribunal judge. (Parenthetically, we think that such a bald assertion is questionable: perhaps it would be better to have said that it was not in all the circumstances of the case reasonable for Mr Lau to have been ignorant of his obligations. We prefer the analysis in another recent case which indicated that there may be circumstances in which the law may be so obscure, complex and counter-intuitive that it may be reasonable for a taxpayer to be ignorant of it and that such ignorance may in those special circumstances be a reasonable excuse for non-compliance with it. But that was not the case here.)
The lesson? Don’t forget that if your annual income exceeds £50,000 and you or your partner claim Child Benefit, you will need to ask HMRC to send you a tax return if they don’t already do so. Mr Lau’s HICBC, and thus his penalty, was small. Where multiple children and multiple years are involved, the numbers can rapidly become serious.Aficionados of the finer points of tax law (OK - tax nerds) will be intrigued by a point picked up in the earlier HICBC case of Robertson  UKFTT 158 (TC), where the facts were broadly similar. Here, the Tribunal judge considered whether the assessment that HMRC had made to collect the HICBC was valid. He concluded that it was not. The reason was that HMRC had purported to make the assessment under a power (Taxes Management Act 1970, s29) that permits an assessment if HMRC discover “that any income which ought to have been assessed to income tax” has not been assessed. The judge pointed out - correctly in our view – that although the HICBC is a charge to income tax, it does not operate by deeming the Child Benefit to be income: rather, it is a charge to tax that stands on its own. Accordingly, it is not susceptible to assessment under s29: it must be assessed, if at all, under the self-assessment provisions. The point was not considered in Lau, which was concerned only with the validity of the penalty for late notification and not with the mechanics for collecting the HICBC. But we await the next instalment with bated breath.