It is good for tax professionals to receive letters from HM Revenue and Customs from time to time relating to our own tax affairs as it helps to remind us of the emotional impact our clients feel on receiving such letters. I was “lucky” enough to be reminded of this over the weekend when a letter landed on my doormat from HMRC telling me that I had made “an obvious error” on my own tax return! As you might imagine, given that I spend a good deal of my time making sure my clients’ tax returns are correctly completed, I was more than a little put out at the suggestion that I had made an obvious error on my own return! I am pleased to say that a quick check assured me that I had not made an error, but rather frustratingly it was the Inspector of Taxes who had jumped to a conclusion which was basically wrong.
The matter concerned the High Income Child Benefit Charge (HICBC) which seeks to clawback child benefit from anyone with income in excess of £50,000. HMRC helpfully pointed out in their letter that the law allows them to correct tax returns where they consider an “obvious error” has been made and that I had not made the appropriate adjustment to my tax return for the HICBC. The problem however is that the child benefit should be recovered from whichever of a couple living together has the higher income. I had correctly excluded the HICBC on my own tax return for the simple reason that my wife earns more than I do. Had the Inspector checked my wife’s tax record they would have seen that she had suffered the adjustment in the previous year’s tax return and an adjustment had already been made to her PAYE tax code to recover the child benefit for the year in question!
I telephoned the phone number on the letter and explained their mistake. I also asked what they had done to check which one of us was the higher earner. It turned out that they had not checked at all, but had just assumed that I was the higher earner. Tempting as it is to see this as systemic sexism, I think the reality is that HMRC have adopted a “don’t check, just demand the money and let the taxpayer object” approach. I have heard of instances of both partners receiving demands for the same amount.
Putting aside my emotional response, the real problem highlighted here is the difficulty of having an income tax system which purports to assess couples independently and a benefit system which takes into account couples joint income. If you try to mix the two together as in the case of the high income child benefit charge then there are bound to be problems. From an income tax perspective my wife is under no obligation whatsoever to inform me of her income. Had I not been experienced in dealing with HMRC it might have been reasonable for me to assume that the Inspector had properly checked my wife’s income for the year in question and that the HICBC was correctly assessable on me.
HMRC do have an online form which you can complete to ask whether your partner has the higher income to which they will answer only yes or no, but my experience does not give me a great deal of confidence in the accuracy of their answer. Fortunately for me, my wife and I do exchange information about our finances, but there must be many couples who don’t and may be getting incorrectly charged.