27 September 2019
There appears to have been a recent flurry of letters from HMRC, opening checks of 2017/18 personal tax returns where they believe that child benefit payments have been omitted.
Child benefit is not an item many people would automatically associate with their personal tax return, but in reality, it has been something to consider since 2013. In broad terms, if your household receives child benefit and you or your spouse/partner has a total income of £50k+ then there is a clawback of payments. This works on a sliding scale basis such that child benefit payments are clawed back in full where one spouse/partner has income £60k+.
Without wishing to generalise, it is usually the spouse/partner with the lower income who receives child benefit. However the spouse/partner with the higher income is liable to the clawback via their tax return, and experience shows that they are not necessarily aware of the child benefit being received. There might also be a lack of awareness in cases where annual income has historically been below £50k; a one-off increase in annual income means that child benefit may be overlooked when completing the tax return because it hasn’t previously been relevant. Whilst there may be a genuine reason for overlooking Child Benefit, HMRC will assess any additional liability arising as a result of the omission, plus interest and penalties.
As well as highlighting the need for certain individuals to consider child benefit as part of completing their tax returns, the recent HMRC letters shine a light on the range of information available to HMRC from third party sources. HMRC unveiled their so-called supercomputer (or “Connect”) back in 2017. This allows them to draw on data from various government and corporate sources (e.g. the Child Benefit Office, banks, and Land Registry), and use this to check personal income details submitted to them. Where discrepancies arise this is likely to result in an HMRC check.
Powers to check tax returns are not a new development; HMRC has long been empowered by the tax legislation to make enquiries and to charge interest and penalties for any errors identified as a result. However, over more recent years, the penalty regime has become more stringent – particularly with regard to offshore matters. Coupled with the increased sophistication of HMRC’s systems and information at their disposal, it is as important as ever to consider that all bases have been covered when dealing with your personal tax affairs.