Kensall
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 December 2022 |
| Neutral Citation | [2023] UKFTT 11 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2023] UKFTT 11 (TC)
Judge Anne Redston
First-Tier Tribunal (Tax Chamber)
Income tax – High income child benefit charge – The Jason Wilkes judgments – Appellant initially told could not appeal assessments – Whether appeal ‘given’ to HMRC by the Tribunal – Whether Tribunal had jurisdiction to decide appeal against assessments – Whether assessments ‘protected’ under FA 2022, s. 97 – Whether appellant liable to penalties – Whether reasonable excuse – Appeal against penalties allowed – HMRC invited to exercise care and management power in relation to the assessments – TMA 1970, s. 7 and 29 – FA 2008, Sch. 41 – FA 2022, s. 97 – Commissioners for Revenue and Customs Act 2005, s. 5 and 51(3).
In Kensall [2023] TC 08673, the First-tier Tribunal (FTT) allowed a taxpayer’s appeal against penalties for failure to notify liability to the high income child benefit charge (HICBC). The FTT found that it could not allow the appeal against the related discovery assessments, but asked HMRC to consider exercising their care and management power in favour of the taxpayer because they had misdirected him.
The appellant (Mr Kensall) had been a PAYE taxpayer for over 40 years and his only contact with HMRC had been about changes to his coding notice. HMRC issued a letter to Mr Kensall about the HICBC in 2013 and a ‘nudge letter’ in October 2019, but the FTT accepted that neither of these letters had been received. The first letter Mr Kensall received about the HICBC was sent on 19 November 2019 and he immediately rang HMRC and following their advice he used HMRC’s online HICBC calculator which showed that he had no liability to the HICBC. Although Mr Kensall had done his “very best to ascertain if [he] did or didn’t need to pay anything back”, following a compliance check it transpired that his calculations were incorrect, and he should have paid the HICBC for 2016–17, 2017–18 and 2018–19. Mr Kensall again called HMRC who explained the calculations and advised Mr Kensall that he could appeal any penalties but that he could not appeal the HICBC assessments, because his liability was clear from the figures held by HMRC.
On 26 April 2021, HMRC issued Mr Kensall with discovery assessments under TMA 1970, s. 29 in respect of the HICBC and penalties under FA 2008, Sch. 41 in respect of his failure to notify liability to the HICBC.
On 20 May 2021 Mr Kensall appealed against the penalties. Mr Kensall then carried out some research and having realised from the Upper Tribunal’s decision in R & C Commrs v Wilkes that it was possible to appeal the assessments, on 5 September 2021, he sent a notice of appeal to the FTT stating that he was appealing both the assessments and penalties (which the FTT found to be valid). On 21 October 2021, the FTT stayed Mr Kensall’s appeal behind Wilkes (which HMRC had appealed to the Court of Appeal, and subsequently lost (R & C Commrs v Wilkes)).
On the issue of whether Mr Kensall had a reasonable excuse for his failure to notify, the FTT found that it was objectively reasonable for a taxpayer in Mr Kensall’s position to be unaware of the HICBC until he received the letter of 19 November 2019, and also objectively reasonable for him to be ignorant of this change to the law, because:
- he received no earlier direct communication from HMRC;
- he was not made aware of the HICBC through other channels;
- he was not a financially sophisticated taxpayer;
- he was outside self-assessment;
- he has never had any involvement with tax matters or with HMRC other than in relation to PAYE coding notices;
- he had no reason to look for guidance on HMRC’s website; and
- his partner began receiving child benefit in 2002, over a decade before the change in the law.
The FTT also found that Mr Kensall had acted without unreasonable delay.
The FTT allowed the appeal against the penalties.
On the issue of the discovery assessments, the FTT noted that FA 2022, s. 97 had introduced legislation to change the law on discovery assessments, so as to prevent taxpayers relying on the argument put by Mr Wilkes, that discovery assessments could not be used in relation to a failure to pay the HICBC. That new legislation also applied retrospectively, with these earlier assessments called ‘protected assessments’. However the legislation also provides that an assessment for a previous year is not ‘protected’ if the taxpayer:
- appealed to HMRC on or before 30 June 2021; and
- the FTT stayed the appeal behind that of Mr Wilkes before 27 October 2021.
As Mr Kensall had not appealed against the assessments until after 30 June 2021, the assessments were ‘protected’ and the FTT could not allow the appeal.
Judge Redston did however ask HMRC to consider using their care and management power in Mr Kensall’s favour given that he had been misdirected by HMRC.
The changes introduced by FA 2022, s. 97, enabling discovery assessments to be used to assess the HICBC apply for 2020–21, and retrospectively, unless: (a) an appeal had been made against such an assessment by 30 June 2021; and (b) the appeal had been stayed before 27 October 2021 at least in part because of the validity issues argued in R & C Commrs v Wilkes. In this case while condition (b) was satisfied, condition (a) was not, because HMRC had told the taxpayer that he could not appeal the discovery assessments, and by the time he did appeal the assessments he had missed the 30 June 2021 deadline. The FTT did not have the jurisdiction to consider the fairness of HMRC misdirecting the taxpayer, hence their request for HMRC to put things right.
Comment by Meg Wilson, Lead Direct Tax Writer, Croner-i Ltd.
Mr Kensall in person appeared for the appellant
Ms Victoria Halfpenny, Litigator of HM Revenue and Customs' Solicitor's Office appeared for the respondents
[1] On 26 April 2021, HM Revenue & Customs (“HMRC”) determined that Mr Kensall was liable to pay the High Income Child Benefit Charge (“HICBC”) for the tax years 2016–17, 2017–18 and 2018–19, and issued him with the following:
- tax assessments totalling £2,295, raised under s 29 of the Taxes Management Act 1970 (the TMA). Assessments raised under that section are known as discovery assessments; and
- penalties totalling £459 charged under Finance Act 2008, Sch 41, for a failure to notify liability to the HICBC.
[2] In relation to the penalties, I found that Mr Kensall had a reasonable excuse, and allowed his appeal. In relation to the assessments, I refused his appeal for the reasons explained in the next following paragraphs. However, HMRC is asked to consider exercising their care and management powers in Mr Kensall's favour.
[3] On 15 June 2020, another taxpayer, Mr Jason Wilkes, appealed to the Tribunal against HICBC discovery assessments. He won his appeal because the Tribunal found that the legislation did not allow HMRC to issue that type of assessment in relation to a failure to pay the HICBC, see Wilkes [2020] TC 07740 (“Wilkes FTT”).
[4] HMRC appealed to the Upper Tribunal, which on 30 June 2021 upheld the Tribunal's decision, see R & C Commrs v Wilkes [2021] BTC 530 (“Wilkes UT”). HMRC made an onward appeal to the Court of Appeal; that appeal was also determined in Mr Wilkes' favour on 7 December 2022, see R & C Commrs v Wilkes [2022] BTC 38 (“Wilkes CoA”). The Court of Appeal judgment was published after the hearing of Mr Kensall's appeal, but before the issuance of this decision.
[5] Meanwhile, by Finance Act 2022, Parliament had introduced legislation to change the law on discovery assessments for 2021–22 and subsequent years, so as to prevent taxpayers relying on a similar argument to that put by Mr Wilkes. That new legislation also applies retrospectively, and these earlier assessments are called “protected assessments”. Somewhat confusingly, the person “protected” by the legislation is the Treasury, not the taxpayer.
[6] In some situations, an assessment for a previous year is not “protected”. In particular, a taxpayer is not subject to the retrospective provisions if he (a) appealed to HMRC on or before 30 June 2021, and (b) the Tribunal stayed his appeal behind that of Mr Wilkes before 27 October 2021.
[7] Mr Kensall contacted HMRC on 23 April 2021 and was told the amount of the assessments and the penalties; he was also told that he could appeal the penalties but not the assessments, because it was clear from the figures held by HMRC that he was liable to the HICBC.
[8] On 10 May 2021 Mr Kensall appealed the penalties. HMRC refused his appeal and that decision was upheld on statutory review. Mr Kensall then carried out some research on the internet, and having identified the Wilkes case, realised it was possible to appeal the assessments.
[9] On 5 September 2021, Mr Kensall sent a Notice of Appeal to the Tribunal; he stated that he was appealing both the assessments and the penalties. There were some complicated technical issues about the making of the appeal against the assessments, see paragraph 74 and paragraph 84, but HMRC accepted that the Tribunal had the relevant jurisdiction. On 21 October 2021, the Tribunal stayed his appeal behind Wilkes.
[10] Mr Kensall thus met one of the conditions for his assessments not to be protected, namely that his appeal had been stayed behind Wilkes before 27 October 2021. However, he did not meet the other condition. Although he had appealed against the penalties on 10 May 2021, he did not appeal to HMRC against the assessments until after 30 June 2021.
[11] Mr Kensall's position was that he would have appealed both the assessments and the penalties on 10 May 2021, had he not been incorrectly told by HMRC that he was unable to appeal the assessments. Had he appealed both assessments and penalties on that date, his assessments would not be “protected”, and he would be in the same position as Mr Wilkes. If the Court of Appeal judgment is the final position, Mr Kensall's assessments would be cancelled.
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