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the law
the law
The HICBC was introduced by Finance Act 2012 and had effect from 7 January 2013.
Essentially, the HICBC clawed back Child Benefit paid to high earners, if they continued to claim Child Benefit. The HICBC is an income tax charge on individuals who, or whose partners, receive Child Benefit where the Adjusted Net Income (ANI) of the claimant or their partner exceeds £50,000 in a tax year.
An income tax charge of 1% of the Child Benefit received by the household arises for every £100 by which the ANI of the person liable to the HICBC exceeded £50,000. Consequently, where that person’s ANI reached £60,000 in a tax year, the HICBC amounts to 100% of the Child Benefit received in their household. Where the ANI of the liable person is between £50,000 and £60,000, they will still receive some Child Benefit, so they may want to continue to claim. The claim may be cancelled at any time.
A person who is liable for the HICBC and who has not received a notice to file a self-assessment tax return under section 8 TMA must notify HMRC of their chargeability to income tax under section 7 TMA.
Section 7 TMA provides, so far as material:
“7(1) Every person who
(a) is chargeable to income tax or capital gains tax for any year of assessment, and
(b) falls within subsection (1A) or (1B), shall, subject to subsection (3) below, within the notification period, give notice to an officer of the Board that he is so chargeable.
7(1A) A person falls within this subsection if the person has not received a notice under section 8 requiring a return for the year of assessment of the person's total income and chargeable gains. …
7(1C) In subsection (1) “the notification period” means
(a)in the case of a person who falls within subsection (1A), the period of 6 months from the end of the year of assessment, …
7(3) A person shall not be required to give notice under subsection (1) above in respect of a year of assessment if for that year
(a)the person's total income consists of income from sources falling within subsections (4) to (7) below,
(b)the person has no chargeable gains, and
(c)the person is not liable to a high income child benefit charge.”
By virtue of section 7(5) TMA a person whose income falls under PAYE does not normally have to notify liability under section 7, but this does not apply if the individual is liable for the HICBC by virtue of section 7(3)(c).
As the assessments were Discovery Assessments, they must comply with the provisions of section 29 TMA. Section 29 currently provides, so far as material:
“29 Assessment where loss of tax discovered.
If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a [year of assessment]—
[(a) that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed,]
that an assessment to tax is or has become insufficient, or
that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”
Further conditions apply where the taxpayer has submitted a tax return, but they do not apply in the present case as Ms Zefi did not submit a return.
Section 29 TMA previously provided that an officer could make a discovery assessment where income or capital gains had not been assessed to tax. The Court of Appeal in the case of The Commissioners for HMRC v Jason Wilkes [2022] EWCA Civ 1612 (Wilkes) decided that under the previous version of section 29 HMRC could not make discovery assessments in relation to the HICBC as it is a free-standing charge to income tax and not an amount of income on which tax had not been charged. While Wilkes was progressing through the courts many HICBC cases which relied on discovery assessments, including Ms Zefi’s, were put on hold, pending the outcome of the appeal.
Following the Court of Appeal decision in Wilkes, section 29 TMA was amended by section 97 Finance Act 2022 to its present form which allows discovery assessments to be made where an amount of income tax (as opposed to an amount of income) has not been assessed. The 2022 changes were retrospective as well as prospective, provided the discovery assessment was a “relevant protected assessment”. In the context of the HICBC, an assessment would be a relevant protected assessment unless it was subject to an appeal notice which was given to HMRC on or before 30 June 2021 and satisfied certain other conditions; broadly that the appeal raised the issue in Wilkes, or had been paused pending the outcome of Wilkes.
In the present case, the assessments were made and appealed in 2023, that is, long after the cutoff date of 30 June 2021 and so Wilkes can have no application. The assessments are protected assessments and the current version of section 29 TMA applies.
Under section 36(1A)(b) TMA an assessment involving a loss of income tax attributable to a failure of a person to notify liability under section 7 TMA may be made up to 20 years after the end of the tax year in question.
Schedule 41 of the Finance Act 2008 (schedule 41) provides for penalties where a person has failed to notify liability under section 7 TMA.
The maximum penalty for a non-deliberate failure is 30% of the Potential Lost Revenue-broadly- the amount of income tax which should have been charged. HMRC may reduce the penalty, to a minimum of 20% in the case of a “prompted” disclosure to reflect the degree of co-operation with HMRC. Reductions are made for “telling” HMRC about the failure, “giving” help to quantify the tax and “allowing access” to records to check how much tax is unpaid.