As the current Shadow Chancellor of the Exchequer, Rachel Reeves has inherited several pressing issues from her predecessor, one of which is the contentious High Income Child Benefit Charge (HICBC). Reeves, faces the challenge of addressing the inherent inequities within the HICBC system. Despite recent budget adjustments, significant flaws in the system persist. The recent Tribunal case of Aaron Treliving v HMRC highlights these issues.
The stringent application of tax laws and the necessity for clear, fair guidelines underscore the need for a reevaluation of the HICBC. A major inequity is that a couple with combined earnings of £120,000 can claim full child benefits, while a household with a single earner making £80,000 cannot.
The Need for HICBC Reform
The HICBC aims to limit child benefits for high-income households. However, the current system disproportionately penalises single-income households compared to dual-income households with a higher combined income. This inequity underscores the necessity for comprehensive reform. The HICBC adds a layer of complexity to the tax system, requiring affected taxpayers to register for Self Assessment, calculate their charge, and ensure timely payment. Many taxpayers find these requirements confusing and burdensome, leading to errors, missed deadlines, and subsequent penalties.
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Aaron Treliving v HMRC
In the five years leading up to 5 April, 2023, 935 cases involving the HICBC were appealed to the First-tier Tribunal (FTT), often over minor tax amounts. The recent case of Aaron Treliving v HMRC exemplifies the challenges taxpayers face under the current system.
Tax Years in Question: 2014/15 to 2019/20
Delays in Appeal: Mr. Treliving notified HMRC of his intention to appeal nine months late. HMRC then delayed informing him of their decision to reject the late appeal for nearly 17 months.
Tribunal’s Evaluation of Reasonable Excuses
To appeal, a taxpayer must notify HMRC within 30 days of receiving the assessment notice. Late appeals may be accepted if there is a reasonable excuse. Mr. Treliving presented three excuses:
- Non-receipt of Correspondence: Claimed he did not receive the notice requiring a 30-day appeal. The tribunal evaluated this claim in the context of the various letters and notices that HMRC had sent to him. The Tribunal found that he had indeed been made aware of the appeal requirement through multiple communications, thereby invalidating this excuse.
- High-Risk Pregnancy: His wife was pregnant with their third child, a high-risk pregnancy. He argued that the complications associated with her pregnancy and the birth of their third child had significantly impacted his ability to manage his tax affairs. The tribunal acknowledged that such a situation could provide a reasonable excuse up to the point of the child’s birth. However, this excuse did not account for the extensive delay beyond this period.
- General Life Disruptions: Argued that everyday life interfered with meeting the appeal deadline. The Tribunal concluded that general life disruptions, while understandable, do not justify ignoring tax responsibilities. The judge emphasised that it is not objectively reasonable to neglect or fail to address tax obligations due to everyday life events.
This 30-day period is crucial as it establishes a clear and defined timeframe within which taxpayers must respond to avoid penalties and additional charges. The timeliness of this notification is fundamental to the appeals process, as it ensures that disputes are handled promptly and efficiently.
Importance of the 30-Day Notification Period
- Legal Requirement:
The 30-day notification period is a statutory requirement under UK tax law. Failure to comply with this deadline can result in the automatic rejection of an appeal, barring exceptional circumstances where a reasonable excuse is accepted. This legal framework ensures that all taxpayers are treated equitably and that there is a consistent approach to handling tax disputes.
- Mitigation of Penalties:
Timely notification within the 30-day window can also mitigate additional penalties and interest that accrue on unpaid taxes. By acting promptly, taxpayers can reduce the financial burden associated with unresolved tax liabilities and avoid further complications.
- Clear Communication:
The requirement to notify HMRC within 30 days ensures clear and direct communication between taxpayers and the tax authority. It establishes a formal channel through which disputes can be raised, ensuring that both parties are aware of the issue and can take appropriate action.
- Late Appeals and Reasonable Excuses :
In instances where the 30-day deadline is missed, taxpayers may still submit a late appeal if they can demonstrate a reasonable excuse. A reasonable excuse is typically an unforeseen or unavoidable event that prevented the taxpayer from complying with the deadline. This can include serious illness, bereavement, or other significant personal circumstances. However, the burden of proof lies with the taxpayer to substantiate their claim.
The Tribunal’s Decision
The Tribunal ruled that life circumstances, while understandable, do not excuse failing to comply with tax obligations. It was determined that Mr. Treliving was aware of the requirement to appeal within 30 days from various correspondences. The Tribunal acknowledged that his wife’s pregnancy might have been a reasonable excuse up until the birth of their child, but this did not justify the delay beyond that point. The general excuse of “life getting in the way” was deemed insufficient.
The judge emphasised that a reasonable excuse must be one that would be expected to cause anyone in a similar position to fail to meet their tax obligations. The ruling reinforces the principle that taxpayers must prioritise their tax responsibilities despite personal challenges. This case underscores the importance of timely compliance and the limited scope of acceptable excuses for delays in tax matters.
Download the FTT Tax Judgment:
Tax Tribunal previous case law
The Tribunal’s decision aligns with previous cases such as Thorne v HMRC and Smith v HMRC. In these cases, personal challenges, though acknowledged, did not excuse non-compliance with tax rules. These decisions highlight the stringent standards applied in determining what constitutes a reasonable excuse.
The decision emphasised that while personal hardships can be significant, they do not absolve taxpayers of their obligations. The objective standard applied by the Tribunal necessitates that taxpayers prioritise their tax responsibilities, regardless of personal difficulties. The ruling reaffirmed that life’s challenges, no matter how severe, cannot justify prolonged non-compliance with tax obligations. This decision serves as a crucial reminder that maintaining compliance with tax laws is paramount, and personal issues, although understandable, do not provide sufficient grounds for failing to meet these duties.
Objective Standards for HMRC Reasonable Excuses and Tax Compliance
In determining what constitutes a reasonable excuse, HMRC and the Tribunal apply an objective standard, considering what a reasonable person in the same circumstances would have done. This standard underscores the importance of proactive management of tax affairs, even amidst personal difficulties. For instance, serious illness or bereavement may provide temporary relief, but taxpayers are expected to take reasonable steps to comply with their obligations once the immediate impact of such events has subsided. The ruling in Aaron Treliving’s case serves as a stern reminder that taxpayers are expected to manage their responsibilities diligently and seek timely assistance if needed.
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Navigating the complexities of the HICBC can be daunting. Our law firm specialises in tax litigation and compliance, offering expert guidance to ensure you meet your tax obligations while exploring potential avenues for appeal or relief. We understand the nuances of the HICBC and can assist in managing correspondence with HMRC, preparing appeals, and advising on tax litigation to mitigate the impact of the charge. Our expertise helps you avoid common pitfalls and achieve the best possible outcome in your tax disputes. Understanding recent tribunal cases and navigating your rights and obligations can help you manage your tax situation more effectively. For expert guidance, reach out to our law firm for personalised assistance.
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If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy.
We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].
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