HICBC discovery assessments deemed invalid

A discovery assessment can be made by HMRC where income, which should have been assessed, has not been assessed for tax purposes. A recent decision in an Upper Tribunal case, however, found that neither child benefit, nor the related charge, is defined as income, thereby restricting HMRC’s use of discovery assessments to collect underpaid tax.

The high income child benefit charge (HICBC) applies to anyone who receives child benefit when their income, or their partner’s income, exceeds £50,000. Many have been caught out thinking the charge doesn’t apply to them or because they are unaware of their partner’s finances.

Individuals who pay tax under PAYE may never have needed to fill in a tax return. However, they are required to do so just to report the HICBC.

The decision

Jason Wilkes owed around £4,200 in unpaid taxes as a result of being subject to the HICBC for the tax years 2014/15 to 2016/17. Crucial to the decision was that Wilkes had not filed returns for these years or been issued with a notice to file. 

HMRC raised discovery assessments to collect the tax due. However, since no income as such was ‘discovered’, the assessments raised were invalid. 

Refunds all round?

The answer, sadly, is no. Discovery assessments are valid if tax returns have been submitted but the HICBC omitted; there is then ‘income’. This will be the case for many taxpayers. 

It seems unfair that those complying with the law are at a disadvantage to those who have not. However, this is down to HMRC relying on discovery assessments rather than issuing a notice to file tax returns.

If you have been required to pay the HICBC for prior years then check to see if you fit the refund criteria: tax returns not filed, with discovery assessments used to collect the tax due. 

Details of the high income child benefit charge can be found here.

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