In Stephen Lee v HMRC [2023] TC08872, the First Tier Tribunal (FTT) upheld two of the four assessments for the High-Income Child Benefit Charge (HICBC), as not being a parent of the child did not stop the charge applying. No knowledge of his partner's financial position was, however, a reasonable excuse for preventing penalties from arising.

  • Mr Lee lives with Ms A and had a child with her in 2006.
  • Ms A already had another child with a previous partner.
  • Ms A started to claim child benefit with the first child and continued to claim an increased amount once the second child was born.
  • Mr Lee and Ms A were financially independent and neither knew what the other earned. Mr Lee was also unaware that Ms A claimed child benefit.
  • Mr Lee submitted Self Assessment tax returns up until 2016-2017 when both he and Ms Lee fell fully within the PAYE system.
  • Mr Lee's Adjusted Net Income (ANI) did not exceed £50,000 until 2016-17:
    • He did not pay attention to the guidance on the High-Income Benefit Charge (HICBC) accompanying the tax return as he was not a higher-rate taxpayer at the time.
    • Neither he nor Ms A was aware of any other surrounding publicity at the time.
  • In December 2019, HMRC sent a nudge letter regarding the HICBC to Mr Lee. Ms A followed up by calling HMRC and cancelling the child benefit. She was not informed of any other consequence and HMRC did not send a second nudge letter (which is the custom when the first is not actioned sufficiently).
  • In May 2022, HMRC raised Assessments for Mr Lee for 2016-17 through to 2019-20 and penalties in relation to the HICBC. Mr Lee contacted HMRC immediately in response.
  • In response to the assessments, Ms A had Mr Lee request that HMRC reverse the assessments under ESC A19. The extra-statutory concession allows HMRC not to pursue tax where they have not acted on information available to them in a timely manner. HMRC rejected the claim saying it was not applicable.
  • Mr Lee appealed to the FTT.

The FTT first addressed the issue of penalties and whether Mr Lee had a reasonable excuse. The Perrin tests were applied as follows:

  • Mr Lee and Ms A's financial independence, their lack of knowledge of the HICBC and HMRC's failure to inform them of the potential liability were all proven facts.
  • It was objectively reasonable that Mr Lee was unaware of the HICBC as he was within PAYE when he became a higher rate taxpayer and communications with HMRC had not explained the charge or the consequences.
  • Mr Lee's immediate response to the assessments meant that he had acted without unreasonable delay once the reasonable excuse had ended.

Once it was established that Mr Lee had a reasonable excuse, HMRC were restricted to going back four years instead of six. This meant that the assessments for 2016-17 and 2017-18 were no longer valid.

In relation to the remaining assessments (2018-19 and 2019-20), the relevant legislation is found at s.681B ITEPA 2003.

  • A person can become liable to the HICBC if:
    • Their adjusted net income exceeds £50,000 and either:
      • They are entitled to receive child benefit and do not have a partner who earns more.
      • They are the partner of someone entitled to child benefit and they are the higher earner.

The fact that Ms A's first child, in relation to whom the majority of the child benefit was paid, was not Mr Lee's biological child, had no bearing on his potential liability. The FTT noted that there were no exemptions for either a case where the parent is not the biological parent or where child support is paid by another for that child (as was the case with Ms A's first child).

Mr Lee fell within the second of the two conditions and earned over £50,000. The remaining two assessments were valid. 

The FTT also addressed the application of ESC A19 and concluded that HMRC were wrong to say that was not applicable. HMRC had access to both Ms A and Mr Lee's ANI and were clearly using child benefit information, as that is how they identified Mr Lee for a nudge letter. Nevertheless, the FTT does not have jurisdiction over HMRC in this matter and was unable to comment further. It was pointed out that Mr Lee was able to make a formal complaint to HMRC on this matter and the informaiton to do so was provided to him.

The appeal was partially upheld.

Useful guides on the topic

Adjusted net Income
What is Adjusted Net Income? How do I calculate it? Why is it important? 

High Income Child Benefit Charge
What is the High-Income Child Benefit Charge? Who pays it? Can you appeal against an assessment? Are there any useful cases from the tax tribunals? 

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

Stephen Lee v HMRC [2023] TC08872


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