HMRC approach to high income child benefit charge omitted from returns

The Tax Faculty is aware that HMRC has been writing to taxpayers and their agents in cases where it appears that the high income child benefit charge (HICBC) has been omitted from a self assessment tax return.

We understand that in some cases relating to 2017/18 HMRC has used its power to correct an obvious error in a return within nine months of delivery and has not sought to charge a penalty.

More recently a member has alerted us to a case where, instead of correcting the return, HMRC has instead opened a formal enquiry into the return. The opening letter asks the taxpayer or their agent to contact HMRC to confirm the additional tax due; it only briefly mentions that penalties may be charged if there is an error in the return. In this specific case, the enquiry was opened within the nine month window in which HMRC could have corrected the return.

If no response is received to the initial letter a second letter is issued. This second letter states that if no response is received, HMRC will either amend the return or issue an assessment. The letter also sets out the maximum potential penalty for failure to take reasonable care and states that the maximum penalty of 30% will be charged by default if the taxpayer does not help HMRC to complete the check. It goes on to say that the penalty will be reduced if the taxpayer replies to the letter and gives HMRC all the information needed to complete the check.

This case highlights the importance of responding promptly to such letters from HMRC even if the HICBC figure and additional liability is correct and accepted by the taxpayer. There is a risk that taxpayers might miss the section in the letter about HMRC’s intention to charge maximum failure to take reasonable care penalties by default if it does not receive a reply to the second letter.