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The facts
The facts
Ms Zefi is an employee and had always been taxed under PAYE. She had never been required to submit a tax return.
She began claiming Child Benefit from 17 August 2015, after the introduction of the HICBC. The claim form which applied at the time contained prominent information about the HICBC and emphasised that it applied if the claimant or their partner earned over £50.000. Ms Zefi’s ANI was below £50,000 at this point.
On 15 February 2018 Ms Zefi telephoned the Child Benefit Office. The Hearing Bundle contained a full transcript of the conversation, and we summarise the salient points below:
Ms Zefi stated she wanted to inform them about a change of circumstances in that her income was now above £50,000. She believed that, as a result, she was no longer entitled to Child Benefit.
The “Advisor” explained that Ms Zefi remained entitled to Child Benefit and informed her of the consequences:
“…you have got the option of opting out of receiving payments, so because of the tax charge that was brought in back in 2013, for every £100 you go over 50,000, you’d pay back 1% of any child benefit received, so a tax charge, so for example if you were going to be on 52,000 you’d pay back 20% but keep 80% so you know a lot of people may continue the payments, when you reach 60,000 that’s when you pay back 100% of any child benefit received, um do you know what your incomes likely to be, the new net income or? Is it between 50, more than 60, do you know what it’s going to be?” (sic)
Ms Zefi informed the Advisor that her income was now £54,000.
The Advisor indicated that about 40% of the payments would be paid in tax and Ms Zefi could opt out of payments or continue to receive Child Benefit but, in this case, she would need to submit a self-assessment tax return each year to pay the tax.
The Advisor told Ms Zefi that, if she did not opt out, she would receive the full amount of Child Benefit but would have to pay back a percentage, through the tax return, depending on her income. She also explained that payments would continue unless and until Ms Zefi informed them that she no longer wished to receive payments, even if her income exceeded £60,000 and she would have to pay back 100% of the Child Benefit. She made it clear that there would be no automatic adjustment, it was up to Ms Zefi to continue claiming or opt out.
Ms Zefi told the Advisor that she would “leave it as it is then” i.e. continue to claim.
The Advisor than told Ms Zefi she would need to register for self-assessment via the gov.UK website and complete a tax return. She told her the form was called an SA1 and that it could be downloaded from the website. She also advised her that she could contact the “tax office” if she had further enquiries.
Finally, she advised Ms Zefi of the self-assessment deadlines for the then current tax year i.e. 2017/18.
We find that, as a result of this conversation:
The Advisor understood that Ms Zefi was proposing to continue to claim Child Benefit and so was liable for the HICBC for the tax year (2017/18) and
Ms Zefi understood that if she continued to claim Child Benefit she was entitled to receive it, but that some or all of it would have to be paid back in income tax depending on her income.
Ms Zefi chose to continue claiming Child Benefit.
Ms Zefi appeared to understand that she would need to complete a self-assessment tax return in order to pay the income tax charge. Given subsequent events, she may not have fully grasped what she needed to do.
Ms Zefi did not submit a tax return.
HMRC issued a “nudge” letter to her on 15 November 2019 advising her to check whether she was liable for the HICBC. A further nudge letter was sent on 16 December 2019.
Ms Zefi took no action.
Officer Matthew Savory “discovered” the loss of tax on 10 May 2021. He was working on a project to identify taxpayers who were liable to the HICBC but had not notified HMRC of their liability and had not registered to receive self-assessment tax returns. HMRC’s internal Risk Intelligence Service had provided a dataset identifying Child Benefit claimants who were earning over £50,000 and who had not responded to the 2019 nudge letters. Officer Savory’s role was to establish if the claimant had failed to notify their liability. He did this by cross-referencing income details obtained from PAYE records with Child Benefit Office records and checking whether the high earner had registered for self-assessment.
On 10 May 2021, he carried out a compliance check on the Appellant. Using the various data available to him, he established that Ms Zefi’s income in the tax years ended 5 April 2016, 2017, 2018 and 2019 was respectively £46,685, £54,409, £62,269 and £67.640. Also, that her income was higher than her partner’s income, that her ANI was over the threshold, that she had been claiming Child Benefit, and that she had not registered for self-assessment or notified her liability.
He concluded that the Appellant was liable for the HICBC in the tax years 2016/17 (£473), 2017/18 (the full amount of the Child Benefit which was £1,076) and 2018/19 (£1,076) and there had, accordingly, been a loss of tax in those years totalling £2,625.
On 11 May 2021, Officer Savory wrote to Ms Zefi indicating that she was liable for the HICBC, setting out the amount of tax due for each of the relevant years and explaining that interest and penalties might also be due.
In response to this letter, Ms Zefi telephoned HMRC and told them that she had contacted the Child Benefit Office when her income went above the £50,000 limit. We assume this was a reference to the February 2018 telephone call. She stated that she had been told to register for self-assessment and complete tax returns. She was, however, confused as to why HMRC had not cancelled the claim and was told the fact she was liable for the HICBC did not affect her eligibility for Child Benefit.
Ms Zefi cancelled her claim for Child Benefit on 1 June 2021.
On 18 June 2021 HMRC wrote to the Appellant saying they had decided she was liable for the HICBC and that they were going to issue assessments.
On 15 July 2021 the Appellant telephoned HMRC asking about the next steps. She was informed that cases were paused and that they would be in touch “soon”. We infer that the pause was the result of the Wilkes case and that HMRC were awaiting the final outcome before proceeding with the assessments.
There was no further contact until 9 January 2023 when HMRC wrote to Ms Zefi explaining that they had not written to her because they were considering whether she was affected by the Wilkes case which was under appeal. They also informed her that the amendments to the legislation (section 29 TMA) meant that they could now deal with her case. On the same day, HMRC issued letters stating that they would be issuing assessments for the HICBC and penalty assessments on the basis that disclosure was prompted but non-deliberate. The penalty rate to be charged was 27% in each year.
On 26 January 2023, Ms Zefi telephoned HMRC and was recorded as being upset and confused about the charges. The adviser explained how the HICBC was calculated, that she was liable for it and also explained the penalties and interest. The adviser further explained that as assessments had been raised, she would have to appeal the HICBC and penalty charges if she disagreed. Further information was given about appeal process and what needed to be done.
Assessments to the HICBC and failure to notify penalties were issued on 26 January 2023.
Ms Zefi appealed the assessments to HMRC. HMRC issued their view of the matter letter upholding the HICBC and penalties on 21 March 2023.
Ms Zefi made a late request for a review which was accepted by HMRC. HMRC issued their review conclusion letter on 31 July 2023 upholding the HICBC assessments but reducing the penalty assessments. The penalty percentage was reduced to the minimum 20% for each year so that the total penalties were reduced to £525. The revised penalty assessments were issued on 15 September 2023.
The Appellant appealed to the Tribunal on 8 September 2023 which is outside the 30 day time limit. HMRC do not object to the late appeal and, to the extent necessary, we give permission to appeal out of time.