HM Revenue & Customs must pay a fine back after a tribunal ruled it was unfair to expect him to know the value of a company car should have been counted as income.
The IRS was criticized for its “heavy handedness” after fining a father for failing to pay a charge that tax experts say he could not reasonably have known he had to pay.
Matthew Kensall was being pursued by HMRC for child benefit payments he applied for between 2016 and 2019.
Like many parents, Mr Kensall didn’t realize he had to pay back child benefit once he or his wife earned more than £50,000 – so he was shocked when HMRC wrote to him demanding a payment of £2,295. He was also fined £459 late.
However, HMRC was ordered to waive the fine in a recent First Tier Tribunal case after the judge decided it was reasonable for Mr Kensall not to know about the charge until he received the demand for tax.
More than 180,000 parents have been affected by such fines since the “child benefit levy” was introduced in 2013. The £50,000 threshold has not changed, meaning more workers are caught as their wages rise.
Keith Gordon, of Temple Tax Chambers, a specialist group of tax lawyers, said the charges were “a trap waiting to happen” because it is up to the taxpayer to file a tax return and pay the charges, but the required to do this is not clear.
“Mr Kensall was punished for not knowing something that was not intuitive,” said Mr Gordon.
Mr. Kensall, who works in the packaging industry, had been with PAYE for over 40 years. He had always had simple tax matters.
After being contacted by HMRC, Mr Kensall telephoned the taxpayer to ask how much he owed. HMRC told him to work it out himself, so Mr Kensall researched the rules online and used the calculator on a government website, leading him to believe he was not liable to pay the charges. It later transpired that he had got this calculation wrong – either because he had forgotten the value of his company car or because he had deducted certain pension payments, Mr Kensall said in court.
The court held that it was reasonable that Mr. Kensall had miscalculated the pension deduction and had not realized that he had to add up his benefits in kind.
Tax experts have said his mistake was understandable and show claiming back benefits is “unnecessarily complicated”.
Michelle Denny-West, of tax firm Moore Kingston Smith, said: “This case highlights the need to simplify and handle the charge in a way that is appropriate for all taxpayers, not just those with knowledge of our complicated selves. rating system.”
The high-income levy was imposed by the coalition government because it “didn’t want to be seen withdrawing child benefits, but they wanted to prevent wealthy families from getting it,” Gordon said.
However, the rules now do not target the wealthiest, he added. A family with one parent earning more than £50,000 and the other earning nothing would have to pay expenses, while a family where both earn exactly £50,000 would owe nothing.
Men and women have been taxed independently since the law was amended in 1990. Mr Gordon said the high-income rules were a “regressive step” in the UK tax system because the highest earner pays the tax even if his partner claims the benefit. “The rules need to be completely rethought.”
A spokesman for HMRC said: “The vast majority of clients are meeting their obligations and meeting the high income surcharge. This ruling does not affect taxpayer liability for the levy.”