Failure to notify

For those individuals who are liable to the HICBC and have not registered for self assessment, it is important to remember that failure to notify penalties are quite unpleasant.

While there may be a presupposition that, as with late filing, the penalty is a fixed £100, a failure to notify penalty is tax geared, operated under the unified penalty code with a normal penalty range of up to 100% of the tax at stake.

However, the key point is that for a failure to notify penalty to arise, not only must you have failed to notify but also there must be tax unpaid as at 31 January 2014.

Thus those who have missed the boat with regard to notification can still put themselves into safe waters by ensuring that they do engage with HMRC as soon as possible to ensure that they can undertake an online submission of a tax return for 2012/13 and crucially pay the tax that is due.

Of course, those who put matters off to the last minute and who have not self assessed before will be frustrated by the need to obtain their Unique Tax Reference (UTR) first before making their return and will therefore find themselves dropped into the penalty regime.

It would seem highly likely, given that apparently 165,000 individuals had failed to notify on time, that there will still be a large number of individuals that do not manage to sort their affairs out, file their return online and pay their tax.

How HMRC will deal with such cases is difficult to predict: the penalty regime differentiates between a number of different behaviours and whether the disclosure is prompted by HMRC or unprompted, ie, the unilateral action of the taxpayer.

The behaviours identified are classed as 'concealed deliberate', 'deliberate' and 'other'. Circumstances in which there has been a failure to notify the existence of a child benefit related tax charge on a deliberate and concealed basis will presumably be rare.

But there will presumably be cases where the existence of a relationship has been suppressed for various reasons, including and maybe not limited, to avoiding the HICBC. It is to be anticipated that the bulk of penalty cases arising will fall within the final 'other' category of behaviour (ie, a failure to take reasonable care).

Initial light touch

It is suspected that resistance will be met from HMRC where there are claims that a late disclosure of a need to notify has been unprompted, even where the individual concerned has come forward to HMRC before HMRC contact has been made with them.

The rules are clear that in order to be unprompted not only must the individual have approached HMRC but also that the individual has no reason to believe HMRC has discovered or are about to discover the inaccuracy or under-assessment.

At least scepticism may be met from HMRC that the disclosure was unprompted, given the publicity given to this issue.

This leaves one with a likely analysis of the disclosure being prompted and therefore a likely penalty range of between 10% and 30%. HMRC has indicated that this regime will be policed with a light touch initially. It will be interesting to see whether this would extend to those who should know better, in HMRC's view, ie, the legal and accounting professions.

It is suggested that the implementation of the HICBC three quarters of the way through the tax year gives every indication of some foresight from the government that taxpayers would not engage with the new regime. With child benefit at £20.30 per week for the first child and £13.40 for subsequent children, taking a two-child household, the child benefit totals £1,752.40 per annum and therefore £438 in the period through to 5 April 2013.

Taking a situation in which there is total clawback (ie, highest income exceeds £60,000), the household will find itself with a £438 tax charge, no doubt a small interest charge and perhaps a penalty of £44. The imposition of such a penalty perhaps can be seen as almost just a nudge into compliance.

We are in an environment in which generally there is substantial public disengagement with the tax system, until that is for example, the likes of Google or Starbucks are perceived not to be paying their way or VAT comes to be charged on Cornish pasties and sausage rolls.

There must be some risk that the true impact of the HICBC, in the absence of some uncharacteristic fleetness of foot on HMRC's part regarding PAYE coding etc, will only come truly to the fore in the febrile environment that will surely exist in the months running up to the next general election when the consequences of missing a full year are in force and when perhaps the initial promised light touch approach from HMRC may be less in evidence.

The taxpayer engagement that this will produce will be a story for the early months of 2015!

Nigel May is a partner at MHA MacIntyre Hudson