Child benefit and tax

HMRC has been accused of causing widespread confusion by indiscriminately sending out letters to higher rate taxpayers receiving child benefit which suggests that they may owe additional tax, when in fact their affairs are in order say Harris & Co accountants Northampton #accountantsnorthampton

In its tax blog on its website, ICAEW says it has had several emails and calls from members whose clients have received letters from HMRC asking them to check their tax return.

The letters appear to have been written to those individuals who said they had received child benefit and earned over £50,000 in 2012/13, but who did not themselves actually pay the high income child benefit charge (HICBC).

In the cases brought to the institute"s notice, the individual’s spouse or partner earned the greater amount and had already paid the HICBC which HMRC now seems to be chasing.

ICAEW says the letters are written to attract attention, with the words ‘You need to act now!’ stamped in red across the front, but they have not been copied to agents. The letters suggest recipients may wish to correct their tax returns, and warn they face a penalty for incorrect information.

UHY Hacker Young says it has been contacted by clients who have received the letter, which it says appears to have been sent to taxpayers without checking whether or not the HICBC had already been paid by their partner.

Mike Crellin, tax director at UHY Hacker Young, said:

‘We have had lots of queries about these letters from concerned taxpayers, who thought they had their affairs in order but are now worried that they have made an expensive mistake. In most cases, they have in fact completed the return and paid their tax perfectly correctly.’

Crellin said a lot of people had been caused unnecessary worry by HMRC’s ‘scattergun’ approach to collecting any HICBC due from potential late payers.

Crellin said:

‘HMRC has gone to the lengths of checking the child benefit database, but it hasn’t joined the dots by working out who in the household is supposed to be paying the additional charge and whether or not it has been paid. It is putting the burden of doing that checking on the tax payer.’

In its tax blog, ICAEW noted that it had concerns from the outset about how the HICBC policy would work in practice, saying:

‘Independent taxation should mean just that and collecting tax from one person on account of a benefit paid to their partner is just inviting problems.’

A spokesman for HMRC said those who have paid the charge should disregard the letter, stating:

‘These letters are simply designed to help taxpayers get their returns right by reminding customers who file under self assessment of the importance of including the high income child benefit charge on their tax return.’

This is not the first time HMRC has got into hot water over blanket mailshots. Earlier in the year, the department was forced to drop controversial ‘fishing expedition’ tax letters to hundreds of taxpayers with a lower than average effective tax rate to double check whether they were paying the right amount of tax, without first checking the tax returns of the individuals concerned.