Why won’t the government tell me when I incur a tax liability?
Last Saturday’s The Times carried the banner headline on its money section, ‘Families to be treated like serious tax evaders’. Whatever could that be about? It was about: ‘The taxman is demanding new powers to be able to investigate the financial affairs of at least 170,000 families’.
I suspect most readers, like me, would think that alarming and outrageous if it were true – which of course it is not.
The tax system provides taxpayers with a degree of finality. HMRC must normally raise assessments within four years of the end of the tax year concerned. There are two exceptions.
HMRC can go back six years if it can show either that the taxpayer did not take reasonable care in completing his tax return or that HMRC could not have known from the limited information provided in the return what the taxpayer was actually claiming.
It can go back 20 years in the case of fraud or if the taxpayer did not complete a tax return and did not tell HMRC that they had a new source of income or had realised a capital gain.
To go back more than four years, HMRC has to ‘discover’ that tax has been underpaid. Discovery is a technical term; it broadly means come to know.
Last June in HMRC v J Wilkes [2021] UKUT 150 (TCC), the Upper Tribunal held that the discovery rules do not apply to some types of deemed income, such as the high income child benefit charge (HICBC). The Upper Tribunal accepted that the government had intended the discovery provisions to apply to HICBC when it was introduced but felt that the legislation failed to achieve that objective. The chancellor said on Budget day that the Finance Bill would reverse this decision with effect from the introduction of the HICBC. The Finance Bill duly makes that change, but protects those who appealed against a purported discovery assessment prior to 30 June 2021, so that Mr Wilkes keeps the fruits of his victory.
Whatever one may think of the HICBC, and many think it unfair, the government can hardly be faulted for ensuring that it can be collected, which is all that the discovery provisions seek to do.
So, where does families being treated like serious tax evaders, and HMRC demanding more powers to investigate, come into this? I wish I knew. Discovery is certainly the machinery for collecting tax from tax evaders, but it mostly collects tax from those who have not taken reasonable care in completing their tax returns. Discovery has nothing to do with HMRC investigating anyone or anything; it is the machinery to collect unpaid tax exposed either voluntarily by the taxpayer or as a result of HMRC using their general information powers under FA 2008 Sch 36.
The Times complains that ‘thousands of families … did not realise they had to repay any benefit’. I find this odd. Look for child benefit on gov.uk, or indeed on the CAB website and both explain the HICBC. Indeed, to claim child benefit, one has to complete an HMRC form CH2 and section 4 of the form itself says that HICBC has to be repaid if you or your partner has an income in excess of £50,000.
The Times printed two specific sob stories. One lady complained that ‘she works in the financial services industry and if we treated customers in this manner the regulator would have been all over us’. By ‘in this manner’, she appears to mean that she thinks that HMRC should have been monitoring her salary and sent her a reminder about HICBC immediately when this went over £50,000. I hope that such unrealistic expectations are not representative of those who work in the financial services industry! The other story tells us that: ‘I’m a law-abiding person – I was a police officer for 11 years. I think imposing a tax charge on a family without a simple letter telling any of us that it exists is a disgrace’. I don’t want to split hairs, but isn’t a law-abiding person expected to know the laws that he must abide by, in the case of HICBC, the ITEPA 2003 s 681B? We don’t expect the government to send us a letter warning us not to exceed the speed limit, or not to use hard drugs, so why should they have to send people a letter telling them to pay their taxes?
Of course, the law is so vast that the old maxim – ‘ignorance of the law is no excuse’ – no longer holds true for the more abstruse bits of the law. But, if when you claim child benefit you are specifically told about HICBC, shouldn’t that be enough?
Home >Articles > Collecting the HICBC: reversing Wilkes
Collecting the HICBC: reversing Wilkes
Why won’t the government tell me when I incur a tax liability?
Last Saturday’s The Times carried the banner headline on its money section, ‘Families to be treated like serious tax evaders’. Whatever could that be about? It was about: ‘The taxman is demanding new powers to be able to investigate the financial affairs of at least 170,000 families’.
I suspect most readers, like me, would think that alarming and outrageous if it were true – which of course it is not.
The tax system provides taxpayers with a degree of finality. HMRC must normally raise assessments within four years of the end of the tax year concerned. There are two exceptions.
HMRC can go back six years if it can show either that the taxpayer did not take reasonable care in completing his tax return or that HMRC could not have known from the limited information provided in the return what the taxpayer was actually claiming.
It can go back 20 years in the case of fraud or if the taxpayer did not complete a tax return and did not tell HMRC that they had a new source of income or had realised a capital gain.
To go back more than four years, HMRC has to ‘discover’ that tax has been underpaid. Discovery is a technical term; it broadly means come to know.
Last June in HMRC v J Wilkes [2021] UKUT 150 (TCC), the Upper Tribunal held that the discovery rules do not apply to some types of deemed income, such as the high income child benefit charge (HICBC). The Upper Tribunal accepted that the government had intended the discovery provisions to apply to HICBC when it was introduced but felt that the legislation failed to achieve that objective. The chancellor said on Budget day that the Finance Bill would reverse this decision with effect from the introduction of the HICBC. The Finance Bill duly makes that change, but protects those who appealed against a purported discovery assessment prior to 30 June 2021, so that Mr Wilkes keeps the fruits of his victory.
Whatever one may think of the HICBC, and many think it unfair, the government can hardly be faulted for ensuring that it can be collected, which is all that the discovery provisions seek to do.
So, where does families being treated like serious tax evaders, and HMRC demanding more powers to investigate, come into this? I wish I knew. Discovery is certainly the machinery for collecting tax from tax evaders, but it mostly collects tax from those who have not taken reasonable care in completing their tax returns. Discovery has nothing to do with HMRC investigating anyone or anything; it is the machinery to collect unpaid tax exposed either voluntarily by the taxpayer or as a result of HMRC using their general information powers under FA 2008 Sch 36.
The Times complains that ‘thousands of families … did not realise they had to repay any benefit’. I find this odd. Look for child benefit on gov.uk, or indeed on the CAB website and both explain the HICBC. Indeed, to claim child benefit, one has to complete an HMRC form CH2 and section 4 of the form itself says that HICBC has to be repaid if you or your partner has an income in excess of £50,000.
The Times printed two specific sob stories. One lady complained that ‘she works in the financial services industry and if we treated customers in this manner the regulator would have been all over us’. By ‘in this manner’, she appears to mean that she thinks that HMRC should have been monitoring her salary and sent her a reminder about HICBC immediately when this went over £50,000. I hope that such unrealistic expectations are not representative of those who work in the financial services industry! The other story tells us that: ‘I’m a law-abiding person – I was a police officer for 11 years. I think imposing a tax charge on a family without a simple letter telling any of us that it exists is a disgrace’. I don’t want to split hairs, but isn’t a law-abiding person expected to know the laws that he must abide by, in the case of HICBC, the ITEPA 2003 s 681B? We don’t expect the government to send us a letter warning us not to exceed the speed limit, or not to use hard drugs, so why should they have to send people a letter telling them to pay their taxes?
Of course, the law is so vast that the old maxim – ‘ignorance of the law is no excuse’ – no longer holds true for the more abstruse bits of the law. But, if when you claim child benefit you are specifically told about HICBC, shouldn’t that be enough?
