Loading…

DarkLight mode

News – 16.04.25

Buzzacott advises Karnell Group AB (publ) on the acquisition of Warwick SASCo Ltd

Find out how Buzzacott advises Karnell Group AB (publ) on the acquisition of Warwick SASCo Ltd … Read more

Insight – 01.05.25

Transaction readiness – preparing for an exit starts years before sale

One of the key things that impacts transaction outcomes is the preparedness of a business ahead of exit. … Read more

Upcoming event – 14.05.25

Webinar: The new Form PF amendments - June 2025

Book for our Form PF webinar … Read more

Find us quickly

130 Wood Street, London, EC2V 6DL
enquiries@buzzacott.co.uk T +44 (0)20 7556 1200

Last updated: 1 Nov 2022

High Income Child Benefit Charge and HMRC’s assessing position

Introduction

The High Income Child Benefit Charge (HICBC) has sparked controversy, with legal challenges questioning HMRC’s use of discovery assessments. This article explores the Wilkes case, its implications for taxpayers, and how upcoming legislation may impact HICBC recovery efforts.

What is the High Income Child Benefit Charge?

The High Income Child Benefit Charge (HICBC) was first introduced in January 2013 as a tax charge designed to claw back child benefit where an individual, or their partner, receives adjusted net income over £50,000.

The HICBC has been widely criticised for various reasons, most notably due to the lack of publicity surrounding the charge. As a consequence, many taxpayers are completely unaware of their liability to the charge until they are presented with discovery assessments, raised by HMRC, seeking to recover the unpaid HICBC.

HMRC have issued thousands of discovery assessments in an attempt to recover HICBC from taxpayers who have failed to declare the charge since its introduction, almost nine years ago. HMRC has frequently argued that individuals who were entirely unaware of the HICBC had been careless or negligent, thus allowing HMRC to issue discovery assessments and collect unpaid HICBC, beyond the statutory ordinary time limit of four years. However, a recent tax tribunal case has casted some doubt on whether it was lawful for HMRC to issue discovery assessments in cases where a taxpayer had failed to declare the charge.

About the author

Paige Jelley

+44 (0)20 7556 1413
jelleyp@buzzacott.co.uk

What is the High Income Child Benefit Charge?

Was it lawful to issue discovery assessments?

The recent tax case of HMRC v Jason Wilkes [2021] UKUT 150 (TCC) considered whether the HICBC is within the scope of HMRC’s discovery powers. While the appeal was only in relation to a small amount of revenue, the decision of the tax tribunal has had huge repercussions.

In summary, HMRC issued Jason Wilkes with a discovery assessment for failing to notify his chargeability to the HICBC. Mr Wilkes appealed against the charge on the basis that the discovery assessment was unlawful. He argued that HMRC’s discovery powers can only be used to assess ‘income which ought to have been assessed to income tax’, and the HICBC was a free-standing charge, not income.

Both tax tribunals found in Mr Wilkes’ favour and decided that the HICBC was out of the scope of HMRC’s discovery powers. The Upper Tier Tribunal (UTT) held that HMRC should have been issuing revenue determinations to assess any lost revenue arising from the HICBC, rather than discovery assessments.

Revenue Determination vs Discovery Assessment

Revenue Determination vs Discovery Assessment: What is the difference?

The significance of the decision in HMRC v Wilkes lies with the main distinction between revenue determinations and discovery assessments - the timeframe in which HMRC can assess lost revenue.

When issuing revenue determinations, HMRC can only recover sums that first fell due within the four year period preceding the issue of the determination.

However, discovery assessments provide HMRC with the power to recover tax from much longer ago. For example, in cases where taxpayers have failed to notify HMRC of their liability to the HICBC, unless the taxpayer can demonstrate that they had a reasonable excuse for failing to notify HMRC of their liability to the HICBC, HMRC can raise assessments to recover tax from up to 20 years prior to the current tax year. Therefore, discovery assessments allow HMRC to collect HICBC going back to the very introduction of the charge, or for however long the taxpayer has been liable.

Consequently, the UTT’s ruling in the Wilkes case had far reaching consequences for HMRC and its ability to recover the HICBC. Furthermore, any HICBC that had been recovered, incorrectly, by way of discovery assessments was potentially owed back to taxpayers.

The decision in Wilkes was of monumental significance and was likely to result in HMRC not only having to repay millions of pounds, but also lower its expectations on future recoverability of the HICBC.

HMRC’s reaction

Following the UTT decision, HMRC paused all work on HICBC cases and has applied to appeal the landmark decision in the Court of Appeal.

Furthermore, in the Autumn 2021 Budget, the Chancellor announced new legislation to be included in the Finance Bill 2021, designed to clear up any uncertainty regarding HMRC’s assessing position on the HICBC and other tax charges. The new legislation provides for HMRC to use discovery assessments to recover tax charges as well as income.

Most controversially, the legislation will have an immediate and retrospective effect. The legislation is not yet enacted, but when it is, it will be treated as having applied from 30 June 2021. We are, therefore, currently in a time warp, whereby HMRC does not yet have the power to use discovery assessments to recover the HICBC, but knows it will do shortly. We are, therefore, experiencing the calm before a storm of HMRC discovery assessments to collect the HICBC.

Inevitably, when this storm hits it will be blowing in HMRC officers seeking to charge innocent, and entirely oblivious taxpayers with financial penalties. In many cases, these penalties simply will not be legally due, and taxpayers should seek assistance from specialists to help reduce their exposure. Buzzacott anticipate a huge number of discovery assessments being issued next year, and would encourage affected individuals to utilise our experience and expertise in protecting taxpayers from these penalties.

Get in touch

For a completely free, no obligation discussion as to how Buzzacott might be able to assist you, please do not hesitate to contact us.