Tribunal Ruling: A Major Blow to HMRC in High-Income Child Benefit Charge Dispute
In a recent First-tier Tribunal (Tax Chamber) case, Sarah Manzi emerged victorious against His Majesty’s Revenue and Customs (HMRC) in a dispute involving the High Income Child Benefit Charge (HICBC). The tribunal’s decision, released on June 24, 2024, has not only saved Mrs. Manzi from nearly £10,000 in backdated taxes but also set a significant precedent for similar cases.
Case Background
Sarah Manzi, a PAYE employee, was assessed by HMRC for HICBC liabilities totalling £9,930 for the tax years 2014/15 to 2019/20. In addition, HMRC imposed late payment interest of £1,415.95 and penalties amounting to £1,862.20 for her failure to notify her chargeability to the HICBC.
The HICBC, introduced in 2013, imposes a tax charge on individuals with an Adjusted Net Income (ANI) over £50,000 who receive Child Benefit or whose partners receive it. Mrs. Manzi’s ANI consistently exceeded £50,000 from 2014/15 onwards, making her liable for the charge. However, she was not within the Self-Assessment regime and was unaware of her obligation to notify HMRC of her chargeability to the HICBC.
Tribunal Proceedings
The tribunal, presided over by Judge Newstead Taylor, examined whether HMRC’s assessments and penalties were valid, in time, and whether Mrs. Manzi had a reasonable excuse for her failure to notify HMRC. During the hearing, significant issues arose, particularly regarding the absence of telephone logs and the credibility of HMRC’s evidence.
Mrs. Manzi’s defence hinged on her ignorance of the law and the misleading advice she received from an HMRC representative during a phone call on December 9, 2019. According to her testimony, the HMRC officer advised her that she did not need to take any further action after de-registering from Child Benefit, advice that the tribunal found she reasonably relied upon.
Tribunal Decision
In a comprehensive ruling, the tribunal found in favour of Mrs. Manzi on several key points:
Out-of-Time Assessments: The tribunal ruled that HMRC’s assessments for the tax years 2014/15 to 2017/18 were out of time and, therefore, invalid. The tribunal accepted that Mrs. Manzi had a reasonable excuse for her failure to notify HMRC due to her ignorance of the requirement and the misleading advice she received from HMRC.
Penalties Discharged: The penalties imposed by HMRC were also discharged by the tribunal, as they were contingent on the validity of the underlying tax assessments, which were found to be out of time.
Interest Charges: While the tribunal acknowledged that interest charges for the valid assessments (2018/19 and 2019/20) were legally enforceable, the majority of the interest charges linked to the invalid assessments were effectively nullified.
Implications of the Ruling
This tribunal ruling represents a significant setback for HMRC in enforcing the HICBC and highlights the challenges taxpayers face in navigating complex tax laws. The decision underscores the importance of clear communication and accurate guidance from HMRC, particularly for taxpayers who are not within the Self-Assessment regime.
For taxpayers facing similar charges, this case offers hope that reasonable excuses, particularly those involving misleading advice from HMRC, can be successfully argued in tribunal appeals. The ruling also emphasizes the need for HMRC to ensure their procedures and communications are robust and transparent to avoid similar outcomes in future cases.
As taxpayers and advisors digest this decision, the case of Sarah Manzi v HMRC may well become a key reference in future HICBC disputes, potentially influencing the outcome of many other cases currently in the pipeline.