Even in long-term or married relationships, couples very often operate separate bank accounts and keep their personal finances private from one another. However, as a case concerning the High Income Child Benefit Charge (HICBC) showed, such confidentiality can occasionally have very unfortunate consequences.
HICBC was introduced in 2013 and, in broad terms, renders those whose adjusted net income exceeds £50,000 a year liable to Income Tax on child benefit payments received by them – or, crucially, by their partners. The advent of the charge was the subject of a publicity campaign and high-earning parents were given the choice of either ceasing to claim child benefit or continuing to receive it, subject to tax.
A husband whose income was above the £50,000 threshold in a number of tax years was assessed by HM Revenue and Customs (HMRC) for back tax of £10,397 in respect of child benefit paid to his wife during the relevant period. He also received a £1,900 penalty on the basis that he had failed to notify HMRC that his income rendered him liable to HICBC.
Ruling on his challenge to those bills, the First-tier Tribunal (FTT) noted that he and his wife kept their finances separate and private. They had no shared bank account. Child benefit payments made into the wife's account were a legacy of a previous relationship and she began receiving them long before their marriage. The FTT accepted that he only became aware that she was receiving child benefit when HMRC's tax demand landed on their doormat.
The couple contended that HICBC operates in an unfair and capricious manner in that a couple, one of whom was claiming child benefit, who each earned £49,000 a year would not be subject to the charge, whereas a couple one of whom earned £50,001 a year would be required to pay it.
The FTT observed, however, that it has no jurisdiction to consider the fairness or otherwise of primary legislation. HMRC, also, cannot question the will of Parliament and its duty is to collect tax in accordance with the law as enacted. The tax assessment had been properly raised and served and the FTT had no alternative but to uphold it.
In overturning the penalty, however, the FTT emphasised that financial confidentiality between partners is both understandable and wholly proper. The wife was under no moral or legal obligation whatsoever to inform her husband that she was claiming child benefit until he was put on actual notice of his liability to HICBC. They were both clearly honest and honourable people who were very upset to have fallen foul of the tax authorities and who were keen to rectify matters.