A recent Upper Tribunal case has raised questions about HMRC’s approach to collecting tax on child benefit.
Child benefit tax, or the High-Income Child Benefit Charge (HICBC) to use its legal name, has a chequered history. The HICBC was introduced in January 2013 as a mechanism for clawing back child benefit from high-income couples, whether married or not. From 2013, the definition of ‘high income’ has been that one (or both) of the couple has adjusted total income of over £50,000. If both cross the threshold, then the person with the highest income pays the tax.
When the HICBC was introduced, it only affected higher-rate taxpayers, but now that £50,000 threshold can also catch basic-rate taxpayers. The highest income approach means that a couple who have an evenly split income of £100,000 pay no HICBC, but their neighbours, with £60,000 of income all in one partner’s name, face the full force of the charge.
The way that HICBC is levied is unusual. The charge is calculated as 1% of the child benefit received for each £100 of income above £50,000 as the example below shows.
Although treated as an income tax charge, technically the HICBC is not a tax on income. This distinction may seem to be arcane, but in a recent case heard by the Upper Tribunal, it meant that HMRC lost its appeal. The tribunal found that a ‘discovery assessment’, one of HMRC’s common methods of collecting HICBC from those who have not completed a self-assessment return, was invalid because it could only be used for tax due on income. There is now a major question mark over HICBC already paid by taxpayers caught by discovery assessments.
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