Jacques
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 July 2020 |
| Neutral Citation | [2020] UKFTT 311 (TC) |
| Date | 29 July 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 311 (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, 29 – FA 2008, Sch. 41.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against a penalty for his failure to notify his liability to the HICBC, finding that ignorance of his liability to the HICBC provided him with a reasonable excuse for his failure.
Mr Jacques (the appellant) failed to notify his liability to the HICBC in 2016–17 and 2017–18 as was required by TMA 1970, s. 7. HMRC drew the appellant's attention to the potential charge in November 2019 and in January 2020 they raised assessments for the HICBC, and a failure to notify penalty for 2016–17 under FA 2008, Sch. 41.
The appellant accepted and paid the assessments but appealed against the penalty. Submitting that he was unaware of his liability for the HICBC until he received a letter from HMRC in January 2020.
HMRC submitted that they accepted that the appellant was not aware of the change in the legislation as he had not specifically been notified of the change in law and had not been aware of HMRC's information campaign in the run up to the introduction of the HICBC. However, HMRC did not consider that ignorance of the law nor the fact that the appellant was not personally notified of the requirement for a tax return provided a reasonable excuse. HMRC justified this using extracts of case law, including from Perrin v R & C Commrs [2018] BTC 513.
The FTT noted that the legal principles it had to consider with regard to reasonable excuse were those set out in Perrin. 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). It adopted the test in Clean Car Co Ltd [1991] BVC 568 in determining that the appellant's ignorance of the requirement for him to complete a self-assessment tax return in light of his HICBC liability was objectively reasonable. 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 waiting for HMRC to discover a liability rather than notifying it 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 two tax years in question.
Although not strictly necessary, the FTT also considered the issue of special circumstances. Judge Popplewell disagreed with HMRC's assertion that special circumstances only apply where there are “exceptional unusual circumstances” and instead said that the correct test was that in Edwards v R & C Commrs [2019] BTC 516, para. [73] and [74]. But even adopting this broader definition he agreed with HMRC that there were no special circumstances for this appellant.
The FTT allowed the appeal.
This case refers 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 comprise a reasonable excuse.
[1] This appeal concerns the High Income Child Benefit Charge (“HICBC”). The appellant has been assessed to HICBC for two tax years (2016–2017 and 2017–2018), together with a penalty (the “penalty”) for failing to notify chargeability under section 7 Taxes Management Act 1970 (“TMA”). The penalty has been assessed pursuant to Schedule 41 Finance Act 2008 (“Schedule 41”). The tax assessments for the two years amount to £5,002.10. The penalty was issued in respect only of the tax year 2016–2017 and amounts to £250.10. No penalty was issued for the tax year 2017–2018.
[2] The appellant has accepted the tax assessments and paid them. However he has appealed against the penalty.
[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] I was provided with a court bundle, which included the appellant's notice of appeal. The respondents' statement of case 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's spouse had been in receipt of Child Benefit from 25 July 2005. HMRC's records show this.
- 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 about the charge on HMRC's website.
- The appellant was aware of none of these press releases, nor of this information. He was sent no letter advising him that he might be liable to the HICBC until November 2019.
- For both the 2016–2017 and 2017–2018 tax years, the appellant was an employee.
- For the tax year 2016–2017 his adjusted net income was £60,001.16. For 2017– 2018, it was £61,594.51.
- The appellant had not been required to submit a self-assessment tax return for either of the years in question or for any previous tax year.
- On 6 November 2019 HMRC issued a nudge letter to the...
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Belloul
...HICBC for the tax years in question. The FTT accordingly allowed the appeal. Comment 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,......
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Goodall
...to the general public when it was first introduced or subsequently, or which was a available on their website. In my decision in Jacques [2020] TC 07793, I said this: [27] But there was nothing which prompted the appellant to access the information which is available about the charge on HMR......