Belloul
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 July 2020 |
| Neutral Citation | [2020] UKFTT 312 (TC) |
| Date | 30 July 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 312 (TC)
Judge Nigel Popplewell
Income tax – High income child benefit charge – Penalty assessment – Reasonable excuse based on ignorance of the law – Observations on HMRC's extracts from Perrin v R & C Commrs [2018] BTC 513 and Nicholson v Morris (HMIT) (1977) 51 TC 95 – Appeal allowed – ITEPA 2003, s. 681B – TMA 1970, s. 7, 115, 29 – FA 2008, Sch. 41 – Interpretation Act 1978, s. 7.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against penalties for his failure to notify his liability to the HICBC, finding that ignorance of the law on the HICBC provided him with a reasonable excuse for his failure.
Mr Belloul (the appellant) failed to notify his liability to the HICBC for 2013–14, 2014–15 and 2015–16 as he was required to do by TMA 1970, s. 7. HMRC wrote to the appellant in October 2017 advising him that he might be liable to the HICBC and that he had not registered for self-assessment for the years in question. The appellant contacted HMRC and after some further correspondence HMRC issued assessments for the HICBC and in January 2018 issued failure to notify penalties under FA 2008, Sch. 41.
The appellant appealed against the penalties.
HMRC submitted that they had sent the appellant a letter (an SA252) in August 2013 telling him about the HICBC and urging him to check if he was liable to it. Notwithstanding that, HMRC's view was that there was no obligation to notify specific taxpayers of how any changes in legislation might affect them. In their view it was for individuals to take steps to understand the law and how it applied to them. HMRC did not consider that ignorance of the law provided a reasonable excuse. They justified this using extracts of case law, including from Perrin v R & C Commrs [2018] BTC 513 and Nicholson v Morris (HMIT) (1977) 51 TC 95.
The appellant Submitted that he was unaware of his liability for the HICBC until he received the letter from HMRC in October 2017. He claimed that he had not received the SA252 and said if he had had any correspondence he would have acted promptly as he did when he got the letter in October 2017.
The FTT noted that the legal principles it had to consider with regard to reasonable excuse were those set out in Perrin (para. [81] and [82]). It noted that ignorance of the law can, in certain circumstances, comprise a reasonable excuse (this was contrary to HMRC's submission, where they had failed to extend their case extract to include mention of this). The FTT adopted the test in Clean Car Co Ltd [1991] BVC 568 in determining whether the appellant's ignorance was objectively reasonable.
The FTT found that one of the most crucial circumstances of this case concerned whether HMRC had given an SA252 to the appellant in August 2013. Because if the appellant had received the letter it would have been very difficult for him to claim ignorance of his responsibilities with respect to the HICBC. The relevant legislation was in TMA 1970, s. 115 and the Interpretation Act 1978, s. 7. The FTT noted that based on the cases of Edwards v R & C Commrs [2019] BTC 516 and R & C Commrs v Rogers & Shaw [2020] BTC 533, where a taxpayer disputes receipt of a notice, HMRC need to show corroborating evidence in addition to a computer printout which itself includes no specific address to discharge their burden of proving that a document was given to a taxpayer. In this case there was no such collaborating evidence, and in fact as the appellant didn't act in 2013, but did promptly act when he received HMRC's October 2017 letter this provided cogent evidence that he did not receive a letter in 2013.
The FTT agreed with HMRC that they had no duty to notify the appellant of his liability to the HICBC and that lack of specific notification could not be a reasonable excuse. But the FTT did think that it was objectively reasonable for the appellant to have been ignorant of the requirement to complete a self-assessment tax return in light of his liability to the HICBC. This was largely because the appellant was not within the self-assessment regime up to and including the tax years in question, and during the tax years he was an employee so there was nothing that put him on notice that the HICBC had been introduced.
The FTT also noted that there was nothing which prompted the appellant to access the information about the HICBC on HMRC's website, and again this was reasonable. HMRC cited Nicholson v Morris (HMIT) (1977) 51 TC 95 as authority that ignorance of the law could not be a reasonable excuse. Judge Popplewell took considerable issue with HMRC's contention that either the case or the extract they quoted showed what they claimed it showed. He also found it “unattractive for HMRC to argue that, on the one hand, it has no obligation to dig through its vaults, yet it expects a taxpayer to do so”.
The FTT concluded that the appellant had a reasonable excuse for failing to notify HMRC of his liability to pay the HICBC for the tax years in question.
The FTT accordingly allowed the appeal.
This decision is very similar to that of Jacques [2020] TC 07793, which was another case heard by Judge Popplewell.
Both cases refer to the Upper Tribunal's decision of Perrin v R & C Commrs [2018] BTC 513, and the principle in para. [82] that in certain circumstances ignorance of the law can be a reasonable excuse.
[1] This appeal concerns the High Income Child Benefit Charge (“HICBC”). The appellant has been assessed to HICBC for three tax years (2013–2014, 2014–2015 and 2015–2016), together with penalties (the “penalties”) for failing to notify chargeability under section 7 Taxes Management Act 1970 (“TMA”). The penalties have been assessed pursuant to Schedule 41 Finance Act 2008 (“Schedule 41”). The tax assessments for the three years amount to £4,780. The penalties amount to £829.40.
[2] The appellant has accepted the tax assessments and paid them. However he has appealed against the penalties.
[3] There was no dispute between the parties as to the relevant legislation which I summarise below.
[4] By section 681B Income Tax (Earnings and Pensions) Act 2003 (which was inserted by Finance Act 2012 with effect for child benefit payments made after 7 January 2013) a person is liable to a charge to income tax, the HICBC, for a tax year if:
- His adjusted net income 3 for the year is greater than £50,000;
- His partner's (partner is defined in section 681G) adjusted net income is less than his, and
- He or his partner are entitled to child benefit.
[5] Section 7 TMA provides that if a person is chargeable to income tax he must notify HMRC of that fact within 6 months after the end of the tax year. But if his income consists of PAYE income and he has no chargeable gains he is not required to notify his chargeability to income tax unless he is liable to the HICBC.
[6] Paragraph 1 Schedule 41 provides that a person who has not been sent a tax return is liable to a penalty if he fails to comply with section 7 TMA. Para 6 Sch 41 provides that in the case of a “domestic matter” (which this is) where the failure was neither deliberate or concealed (as HMRC accept), the penalty is 30% of the “potential lost revenue”; but paras 12 and 13 provide for a reduction in that percentage in the case of prompted disclosure where a taxpayer gives HMRC help in quantifying the unpaid tax, but subject to a minimum penalty rate of 10% if HMRC became aware of the failure less than 12 months after the tax “first becomes unpaid by reason of the failure” (paragraph 13(3)(a)) and 20% otherwise.
[7] Paragraph 14 Schedule 41 provides that HMRC may reduce a penalty because of special circumstances (and by paragraph 19 the tribunal may do so where HMRC's decision in this regard is flawed). Paragraph 20 provides that liability to a penalty does not arise if the taxpayer satisfies HMRC or the tribunal on an appeal that he had a reasonable excuse for the failure.
[8] Under section 115 TMA:
Any notice or other document to be given, sent, served or delivered under the Taxes Acts may be served by post, and, if to be given, sent, served or delivered to or on any person by HMRC may be so served addressed to that person … at his usual or last known place of residence, or his place of business or employment …
[9] Under section 7 of the Interpretation Act 1978 (“IA”):
Where an Act authorises or requires any document to be served by post (whether the expression “serve” or the expression “give” or “send” or any other expression is used) then, unless the contrary intention appears, the service is to be deemed to be effected by properly addressing, pre-paying and posting a letter containing the document and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post
[10] I was provided with a court bundle, which included the appellant's notice of appeal. The respondents' skeleton argument contains useful background to the appeal. I was also provided with a substantial generic bundle which contained much information about the “advertising campaign” conducted by HMRC in relation to the HICBC. On the basis of this information I make the following findings of fact:
- The appellant had been in receipt of Child Benefit for the three tax years under appeal. HMRC's records show this. HMRC were also aware that the appellant was claiming Child Benefit prior to the introduction of the changes to the tax regime in January 2013.
- In 2012, prior to the introduction of the HICBC, HMRC issued a number of press releases which detailed the introduction of the charge and advised high income Child Benefit parents to register for self-assessment. Similar press releases came out in 2014. In 2018 and 2019 HMRC, in response to misgivings raised in connection with reasonable excuse defences issued a further round of press releases dealing with that issue. There is considerable information...
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Kensall
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