High income child benefit charge: When getting it wrong resulted in a taxpayer having to sell the family home
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
31 May 2024
Given all the potential complexities that can arise with high income child benefit charge, we look at the Erridge case where the pressure on the taxpayer ended up with the family home being sold to pay the unexpected tax bill due.
While the Chancellor announced in the spring Budget that the high income child benefit charge (HICBC) threshold would increase to £60,000 from 6 April 2024 and the rate of child benefit withdrawal would be halved so that it would only be withdrawn in full where a taxpayer has adjusted net income of £80,000, there continues to be case law from the previous £50,000 threshold where taxpayers are found to be liable to HICBC without realising it.
In many of these cases, the taxpayer may acquiesce to the HICBC liability but will appeal to the tribunal about the imposition of penalties. The case of Benjamin Erridge v HMRC Commissioners (TC09122) went beyond that, as an apparent heavy-handed approach by HMRC resulted in Mr Erridge having to sell the family home in order to settle the apparent HICBC payable.
Background to the case
Mr and Mrs Erridge had three children and Mrs Erridge claimed child benefit. In all the years concerned, Mr Erridge had the higher adjusted net income and any HICBC liability would have been assessed on him. When HICBC was introduced in January 2013, Mr Erridge was employed and had adjusted net income of below the then £50,000 HICBC threshold. In the following tax years, his earnings increased above the threshold making him liable to notify HMRC of his liability to HICBC.
Mr Erridge is dyslexic and has poor reading and spelling skills and this had an impact on his ability to review HMRC guidance. As he was unaware of the HICBC rules and had not received an awareness letter in August 2013, no HICBC liability was declared on his tax returns. He appointed a tax adviser to assist him with his tax affairs after becoming self employed in 2020.
HMRC nudge letter
A ‘nudge letter’ was sent to Mr Erridge in January 2021, indicating that it was believed he had a HICBC liability for previous tax years. He wrote back to advise that he didn’t have the relevant documentation and requested assistance. HMRC wasn’t forthcoming and he was later advised that HMRC believed he was liable to HICBC for the 2012/13 to 2018/19 tax years. The total estimated HICBC payable was £15,374.
Mr Erridge contacted HMRC and was told that his case was on hold. This was around the time that the Wilkes case ruled that the existing tax legislation did not allow HMRC to use the discovery assessment powers to collect HICBC. Retrospective legislation in Finance Act 2022 enabled HMRC to use discovery assessment to collected HICBC and raised an assessment for £15,374 and penalties of £4,150.98.
Heavy handed collection proceedings
Even though Mr Erridge appealed the assessment and the penalties, HMRC nevertheless adopted a heavy handed approach and insisted that Mr Erridge paid the amount due in full and threatened the use of debt collection proceedings. In a state of panic, he realised that the only asset which could be sold to raise the amount being due was the family home. In pursuit of a prompt sale, Mr and Mrs Erridge accepted an offer below market value and the amount demanded was paid pending the case going to tribunal.
Consideration of reasonable excuse
The tribunal considered the obligation under Section 7 Taxes Management Act 1970 for a person to notify HMRC of their requirement to complete a self-assessment tax return by 5 October following the end of the tax year. Section 29 Taxes Management Act 1970 grants HMRC the power to raise assessments if a person has not notified their requirement to complete a tax return. The relevant time limit in Section 34 Taxes Management Act 1970 is four years after the end of the tax year, extended by Section 36 Taxes Management Act 1970 to six years if the taxpayer was “careless” or twenty years if a taxpayer has not notified HMRC of a liability. The extended time limits do not however apply where there is a “reasonable excuse”.
The tribunal considered the circumstances in Mr Erridge’s case and concluded that although he was not liable to HICBC in the 2012/13 tax year, “no reasonable taxpayer would have read pages of guidance about areas of the tax system which did not apply to him, and a reasonable taxpayer in Mr Erridge’s position would also be dyslexic and have great difficulty reading.” On reviewing the facts, it concluded that he did have a reasonable excuse which meant that HMRC could only rely on the normal four-year time limit and cancelled the assessment for all years except 2018/19, which was still within the four-year window.
Although the tribunal was unable to rule on the application of Extra Statutory Concession A19 (ESC A19), Mr Erridge may well wish to apply to HMRC for ESC A19 given that HMRC didn’t use information it had available to it (i.e. Mr Erridge’s exposure to HICBC).
The need for further resolution
The tribunal noted that HMRC had not acted in accordance with its own internal manuals and that the application of pressure on Mr Erridge caused him financial loss and distress. It drew attention to manual CH414300 which states that “We do not require payment of disputed penalties in any regime until the dispute is resolved”. The tribunal noted that the resolution of this matter was via HMRC’s complaints procedure, which could also be used if HMRC denies any request by Mr Erridge that ESC A19 should apply to the remaining year under charge following the tribunal decision.
This is a most unfortunate case in that Mr Erridge was subjected to unnecessary pressure from HMRC which resulted in him feeling that he had no option but to sell the family home. This was in order to pay a HICBC liability, the majority of which was cancelled by the tribunal and the balance potentially subject to an ESC A19 claim.
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