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A Win for the Taxpayer Against HMRC, will Not Help in the Future – Child Benefit Charges Continue to Frustrate

Business 8 December 2022 By

The Court of Appeal has ruled that HMRC did not have the right to assess child benefit charges for previous years. Still, a retrospective change in tax legislation in 2021 means that other taxpayers are wanting to rely on the outcome of the case is prevented from doing so, says leading tax and advisory firm Blick Rothenberg.

Nimesh Shah, CEO of the firm, said: ”His Majesty’s Revenue and Customs have lost an important tax case at the Court of Appeal against a taxpayer who successfully argued that HMRC did not have the right to assess the child benefit charge for previous tax years.”

He added: “However, a retrospective change in the tax legislation in 2021 means that other taxpayers are wanting to rely on the outcome of this case is prevented from doing so, and so HMRC have still come out as the winner.”

HMRC tried to charge Mr Wilkes over £4,000 for child benefit tax for earlier tax years (2014–2015, 2015–2016 and 2016–2017). Mr Wilkes argued that HMRC could not use their powers of ‘discovery’ to assess the earlier tax years as he was not required to file a self-assessment tax return, partly an anomaly in the legislation. Still, HMRC’s use of the discovery power was deemed too broad.”

Nimesh said: “The decision, in this case, confirms that HMRC cannot use the discovery power to assess the child benefit charge where no tax return has been submitted. HMRC had other legislative powers to recover the charge, but their use of the discovery legislation was incorrect.

“The Court of Appeal’s decision was spot on in the circumstances and confirms that HMRC’s approach to using the discovery power was inappropriate.”

He added: “Unfortunately, a retrospective change in the tax legislation introduced by the Prime Minister, the then chancellor, Rishi Sunak, in his 2021 Budget means that other taxpayers relying on the principles established in the Wilkes case are prevented from doing so – it’s unfortunate that the Government are not as proactive to address the urgent reform required in the flawed child benefit system.”

Nimesh said: “The decision again highlights the frustration with the child benefit charge. It brings the spotlight firmly back on the Government to address the unfairness in the personal tax system, with families facing effective tax rates over 60% when one person’s income is more than £50,000.”