The Commissioners for HM Revenue and Customs v Jason Wilkes
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Baker,Lord Justice Arnold |
| Judgment Date | 07 December 2022 |
| Neutral Citation | [2022] EWCA Civ 1612 |
| Docket Number | Case No: CA-2021-000034 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 1612
Lord Justice Newey
Lord Justice Baker
and
Lord Justice Arnold
Case No: CA-2021-000034
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mrs Justice Falk and Upper Tribunal Judge Timothy Herrington
Royal Courts of Justice
Strand, London, WC2A 2LL
David Yates KC and Laura Poots (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for the Appellants
Richard Vallat KC and Marika Lemos (instructed by Collyer Bristow LLP) for the Respondent
Hearing dates: 23 and 24 November 2022
Approved Judgment
This judgment was handed down remotely at 10.30am on 07 December 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
The question raised by this appeal is whether the appellants, HM Revenue and Customs (“HMRC”), can issue a “discovery assessment” pursuant to section 29 of the Taxes Management Act 1970 (“ TMA 1970”) where they learn that a taxpayer who has neither delivered a tax return in respect of the material year nor been notified of a requirement to do so was liable for high income child benefit charge (“HICBC”).
The facts can be stated very shortly. During the relevant period, the adjusted net income for tax purposes of the respondent, Mr Jason Wilkes, was in excess of £50,000 and greater than that of his wife, who was receiving child benefit. On Friday 30 November 2018, HMRC sent Mr Wilkes, in common it seems with many other taxpayers, a “nudge” letter in which, under the heading “Do you have to pay the [HICBC]?”, they explained the HICBC and asked Mr Wilkes to check if he was liable for it. On the following Monday, 3 December, Mr Wilkes telephoned HMRC and told them that his income exceeded £50,000. He was advised to use HMRC's child benefit tax calculator to work out any HICBC liability, and on 18 December he spoke to Officer Pickett of HMRC, who concluded that HICBC was payable in respect of the 2014–2015, 2015–2016 and 2016–2017 tax years. On 20 December, therefore, assessments to tax were issued to Mr Wilkes under section 29 of TMA 1970 in the following amounts:
i) 2014–2015: £1,770;
ii) 2015–2016: £1,398; and
iii) 2016–2017: £1,076.
Mr Wilkes had not notified HMRC that he was chargeable to income tax in these years. HMRC considered whether a “failure to notify” penalty should be imposed on him, but they concluded that he had a reasonable excuse and so did not do so. It is noteworthy in this connection that income which Mr Wilkes had received from employment had been dealt with under the Pay As You Earn (“PAYE”) regime and that, as explained in paragraph 16 below, someone in respect of whom that regime is applied will often have no obligation to notify HMRC of chargeability to tax.
Mr Wilkes appealed against the assessments which HMRC had issued, and he was successful before the First-tier Tribunal (“the FTT”). In a decision dated 15 June 2020, the FTT (Judge Zachary Citron and Ms Jane Shillaker) held that the assessments had not been validly raised since HMRC had not discovered any “income which ought to have been assessed to income tax” within the meaning of section 29 of TMA 1970. HMRC appealed to the Upper Tribunal (“the UT”), but the appeal was dismissed. In a decision dated 30 June 2021, the UT (Falk J and Judge Timothy Herrington) agreed with the FTT that HMRC had not been entitled to make the assessments.
HMRC now challenge the UT's decision in this Court.
The statutory framework
HICBC
HICBC was introduced by the Finance Act 2012 (“FA 2012”). Section 8 of that Act explained that schedule 1 to the Act contained “provision for and in connection with a high income child benefit charge”, and paragraph 1 of schedule 1 inserted into part 10 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) an additional chapter, chapter 8, comprising sections 681B to 681H.
Section 681B(1) of ITEPA 2003 (as amended by FA 2012) provides that “[a] person (‘P’) is liable to a charge to income tax for a tax year if (a) P's adjusted net income for the year exceeds £50,000, and (b) one or both of conditions A and B are met”. By section 681B(4), condition B is that:
“(a) a person (‘Q’) other than P is entitled to an amount in respect of child benefit for a week in the tax year,
(b) Q is a partner of P throughout the week, and
(c) P has an adjusted net income for the year which exceeds that of Q.”
By virtue of section 681G, a spouse from whom a taxpayer is not separated is a “partner”.
Section 681C of ITEPA 2003 deals with calculation of HICBC. It provides:
“(1) The amount of the high income child benefit charge to which a person (‘P’) is liable for a tax year is the appropriate percentage of the total of—
(a) any amounts in relation to which condition A is met, and
(b) any amounts in relation to which condition B is met.
For conditions A and B, see section 681B.
(2) ‘The appropriate percentage’ is—
(a) 100%, or
(b) if less, the percentage determined by the formula—
Where—
ANI is P's adjusted net income for the tax year;
L is £50,000;
X is £100 ….”
The result, as the UT noted in paragraph 15 of its decision, is that “the HICBC claws back child benefit by imposing a tax charge on the higher-earning partner, and does so in full if the level of income is at least £60,000, or on a sliding scale if it is between £50,000 and £60,000”.
Schedule 1 to FA 2012 stated that TMA 1970 was to be amended in a single respect, namely, by the change to section 7 mentioned in paragraph 16 below. The schedule also specified, among other things, that PAYE regulations could make provision “for deductions to be made, if and to the extent that the payee does not object, with a view to securing that income tax payable for a tax year by the payee by virtue of section 681B (high income child benefit charge) is deducted from PAYE income of the payee paid during that year” and that reference to the HICBC was to be inserted into section 30 of the Income Tax Act 2007 (“ITA 2007”) as seen in paragraph 22 below.
Section 29 of TMA 1970
TMA 1970 was enacted long before self-assessment was introduced. In its original form, section 29 provided, in subsections (1) and (2), for assessments to tax to be made by either an inspector or the Board. Section 29(3) then stated:
“If an inspector or the Board discover—
(a) that any profits which ought to have been assessed to tax have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become excessive,
the inspector or, as the case may be, the Board may make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged.”
By section 29(8), “profits” was defined to refer to “income”.
With the arrival of self-assessment under the Finance Act 1994 (“FA 1994”), section 29 of TMA 1970 was recast and what had been subsection (3) became, with slight adjustments, subsection (1). The new subsection (1) read:
“If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a chargeable period—
(a) that any profits which ought to have been assessed to tax have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”
Section 29 of TMA 1970 was further revised pursuant to the Finance Act 1998 (“FA 1998”). This substituted “year of assessment” for “chargeable period” and “income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax” for “profits which ought to have been assessed to tax”.
Section 29 of TMA 1970 remained in that form until this year. At the times relevant to this appeal, therefore, it was in these terms:
“If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
(a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”
Section 29 of TMA 1970 has very recently been amended by the Finance Act 2022 (“FA 2022”). Section 97 of FA 2022 provided for section 29(1)(a) of TMA 1970 to become, “that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed”. The alteration has retrospective effect as regards, among other things, assessments in respect of HICBC, but it does not apply in relation to various appeals against discovery assessments of which notice had been given to HMRC by 30 June 2021 and, in consequence, does not affect the appeal which is before us.
A policy paper published by the Government in advance of the passing of FA 2022 explained:
“HMRC's longstanding position is that the assessing provisions in Section 29(1)(a) of the Taxes Management Act 1970 may be used to recover tax charges arising on HICBC, Gift Aid, and certain pensions charges.
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