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Wilkes and the HICBC

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On 26 May 2021, the Upper Tribunal (UT) heard HMRC’s appeal in the leading high-income child benefit charge (HICBC) case of J Wilkes v HMRC. The outcome of this case will affect thousands of taxpayers as it will set a binding precedent on whether HMRC is able to impose the HICBC by means of a discovery assessment. It may also have implications for the validity of discovery assessments more generally.

HICBC was first introduced in 2013. Since that date, individuals who receive child benefit, where the claimant or their partner’s income is more than £50,000, are subject to a specific tax charge if they continue to receive child benefit payments. This charge should be declared on their self-assessment tax return and, if they are not already within the self-assessment system, they will need to register.

Jason Wilkes was among the large number of taxpayers did not realise they were liable to the charge. In 2018, HMRC wrote to Mr Wilkes to notify him that he might be liable to the HICBC. Having considered his position Mr Wilkes agreed and HMRC issued a discovery assessment for underpaid tax. HMRC accepted that he had a ‘reasonable excuse’ for not paying the HICBC at the time due to a lack of awareness of the charge and did not seek to impose penalties.

Mr Wilkes took his case to the First-tier Tribunal ([2020] UKFTT 256 (TC)) and successfully appealed against the assessment on the grounds that HMRC had no power to impose the charge by means of discovery assessment beyond the usual four-year time limit as there was no income which ought to have been assessed that wasn’t (as neither the child benefit or the charge is taxable income). The FTT agreed with Mr Wilkes and cancelled the assessments. HMRC has now appealed to the UT.

The FTT decision may be overruled by the UT. However, if the UT finds against Mr Wilkes, HMRC may ask Parliament to change the law so that discovery assessments provisions are changed – potentially retrospectively – to allow them to be used in cases such as this. Many would regard that as unjust.

If past performance is anything to go by, the outcome of the case could be known within three months of the hearing. The many families who have received similar assessments from HMRC will be following this case closely as the majority of these assessments should be cancelled if the UT finds in favour of Mr Wilkes. 

Zoe Martin, RSM UK (Weekly Tax Brief)

Issue: 1535
Categories: In brief