HMRC have lost an important tax case at the Upper Tribunal against a taxpayer who successfully argued that HMRC did not have the right to assess the child benefit charge for previous tax years.
HMRC could now see individuals making a claim to recover tax which was wrongly assessed. It is uncertain how successful such claims would be and HMRC are likely to resist them on the basis that the position was accepted and agreed. This does, however, put them in a difficult position.
The decision in this case confirms that HMRC are not able to use the discovery power to assess the child benefit charge where no tax return has been submitted. HMRC did have other legislative powers to recover the charge, but their use of the discovery legislation was not correct.
HMRC tried to charge Mr Wilkes over £4,000 for child benefit tax for earlier tax years (2014/15, 2015/16 and 2016/17). 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 and the Child Benefit Charge is not ‘income’ for these purposes – partly an anomaly in the legislation, but HMRC’s own use of the discovery power was deemed too broad.
The outcome of the Wilkes case is an important example of HMRC not always being right in their interpretation of the legislation, and taxpayers should be vigilant when receiving requests for information and tax payments, and take advice on whether HMRC do actually have the correct authority.
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