If we act for a self-employed parent, who has relatively low profits, we have to think about the contribution their partner brings to the family’s income. We may not act for the partner, but he or she could be supporting the family with a significant salary. In such cases, should the child benefit received by the family be reported on the partner’s tax return?
It’s a tricky conversation to have, but a necessary one, as the child benefit starts to be clawed-back where the higher earner has adjusted net income of over £50,000. HMRC will issue tax demands to individuals who fail to declare child benefit on their tax return and don’t pay the high income child benefit charge (HICBC) as required.
This is what happen to Mrs Nonyane, who earned over £69,000 for 2013/14 (the first full year for which HICBC applied). She received child benefit of £1055.60 in that year, but was not issued with an SA tax return, so she did not complete one.
In November 2015 HMRC demanded payment of the HICBC due for 2013/14 of £1055.60. Mrs Nonyane appealed, claiming she didn’t know about the HICBC, and hadn’t seen any of the HMRC advertising about it. The tax tribunal was not persuaded, so the assessment for £1055.60 was upheld.
The case report doesn’t mention whether interest was charged on the late paid HICBC, or whether a penalty was raised for failing to declare a tax liability. HMRC does have the power to demand both interest and penalties in such situations, and we have to warn our clients that this could apply to them.
Mrs Nonyane v HMRC (TC05577)
Written by the Tax Advice Network