Wiseman
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 September 2020 |
| Neutral Citation | [2020] UKFTT 383 (TC) |
| Date | 29 September 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 383 (TC)
Judge Rupert Jones, Ian Menzies-Conacher
The Appellant who appeared in person;
Mr Connor Fallon, litigator from HM Revenue and Customs' Solicitor's Office, who appeared for the respondents.
Income tax – High income child benefit charge (HICBC) – Taxpayer with liability did not complete tax return – Discovery assessment – Literal reading of legislation – Discovery assessment valid – Appeal allowed in part – ITEPA 2003, s. 681B – TMA 1970, s. 29(1)(a).
The First-tier Tribunal (FTT) found that, where a taxpayer had failed to notify HMRC of their liability to the high income child benefit charge (HICBC) and had not submitted a tax return, HMRC could use a discovery assessment to assess the taxpayer to the HICBC.
Mr Wiseman (the appellant) had adjusted net income (ANI) in 2013–14 of more than £50,000 and his wife received child benefit. The appellant did not receive a notice to file a self-assessment tax return for the year and accordingly he should have notified his liability to the HICBC within six months of the end of the tax year pursuant to TMA 1970, s. 7. The appellant did not do so because he did not realise he was subject to the charge because HMRC's communications had referred to a person being subject to the charge if their income was over £50,000 which the appellant had assumed did not include his employment benefits.
When HMRC alerted the appellant to the charge in September 2018 he contacted HMRC and made a voluntary disclosure of his liability to the HICBC. In December 2018 HMRC issued a discovery assessment to assess the appellant to a HICBC of £636 for 2013–14. HMRC subsequently accepted that the assessment should be reduced to £563.
The appellant appealed against the discovery assessment.
The three primary issues the Tribunal had to determine were:
- Whether TMA 1970, s. 29(1)(a) empowered HMRC to make discovery assessments in relation to the HICBC generally in circumstances where a taxpayer fails to notify their liability to the charge for the purposes of TMA 1970, s. 7 and fails to file a self-assessment return.
- Whether HMRC had proved that their discovery assessment for 2013–14 had been correctly calculated, competent and in time. In particular, the FTT had to decide whether HMRC had proved:there was a discovery of a loss of tax (income which ought to have been assessed to income tax which had not been assessed);whether an HMRC officer believed this to be the case – whether there was a subjective discovery;if so, whether the belief was objectively reasonable;whether HMRC made the assessment when the discovery was still fresh rather than stale;whether they made the assessment within the statutory time limit; andwhether the assessment was properly calculated.
- Whether the appellant had proved that he was not liable to HICBC for 2013–14 at the sum assessed or at all.
In relation to the first primary issue, the FTT chose not to follow any of the previous FTT decisions, instead finding that in its view the existing phrase in TMA 1970, s. 29(1)(a) sufficed because HICBC was a charge to income tax. HICBC was already defined as being “a charge to income tax” (ITEPA 2003, s. 681B(1)). ITA 2007, s. 3 provided that income tax could be charged on social security income under the relevant part of ITEPA 2003 and ITA 2007, s. 23 (step 7) and 30 provided that HICBC formed part of the income tax calculation. Therefore, the simple conclusion the FTT came to was that where there had been a failure to notify HMRC of a liability to HICBC and failure to file a self-assessment return, discovery assessments were available to HMRC on a straightforward and literal reading of s. 29(1)(a).
In relation to the second primary issue, the FTT was satisfied that HMRC had proved there was a discovery of a loss of tax. Whatever information they held as regards the appellant's tax affairs before the voluntary disclosure was made in October 2018, it was only on then that HMRC became aware of his income which ought to have been assessed to (further) income tax, namely HICBC, which had not been assessed to HICBC (income tax) because no self-assessment return had been filed. The FTT also accepted that there was a subjective discovery by the HMRC officer and that belief was objectively reasonable.
The FTT was satisfied that the discovery was fresh and not stale. The discovery was made in October 2018 and the assessment was made some six weeks later in December 2018, which was reasonable time period for the assessment to have been raised.
The FTT rejected the appellant's ground of appeal that HMRC's assessment made in December 2018 was made out of time. It was satisfied that the law provided that where no self-assessment return had been filed, HMRC could make an assessment up to 20 years after the tax year in question – pursuant to section TMA 1970, s. 36(1A)(b).
The FTT also rejected the appellant's submission that no discovery assessment could be made because he did not receive child benefit himself, rather his wife did, and therefore he did not receive any “income” which ought to have been assessed to income tax such that TMA 1970, s. 29(1) applied. The FTT was instead satisfied that the “income” referred to in s. 29(1) is the appellant's ordinary adjusted net income as defined in ITA 2007, s. 58 from all sources as defined in ITA 2007, s. 3.
On the third primary issue, the FTT was satisfied that the appellant was liable to an assessment for HICBC and that he had not previously been so assessed.
The FTT confirmed that HMRC's discovery assessment in respect of the appellant's liability to pay HICBC for the tax year 2013–14 was lawfully made and valid. However, the appeal was allowed in part because the FTT was satisfied that the assessment should be reduced to the sum of £563 (as HMRC had already accepted).
This decision adds to the growing number of competing FTT decisions concerning the use of discovery assessments to assess a person's liability to the HICBC where there has been a failure to notify HMRC of a HICBC liability. In this case it was found that a discovery assessment could be raised based on the straightforward and literal reading of the legislation in TMA 1970, s. 29(1)(a).
Previously in Robertson [2018] TC 06410 and Wilkes [2020] TC 07740 the FTT decided that TMA 1970, s. 29(1)(a) did not empower discovery assessments in relation to the HICBC. Whereas in Haslam [2020] TC 07786 and Hill [2020] TC 07798 the FTT came to the opposite conclusion, that s. 29(1)(a) did enable discovery assessments in those circumstances, although they arrived at the same result for different reasons.
[1] Imagine a taxpayer who earns over £50,000 by way of salary and benefits from employment and whose partner or spouse receives child benefit on behalf of their children. The taxpayer has been unaware for a number of years that they were obliged to file a self-assessment return and pay further tax because they believed all their income tax was deducted at source through PAYE. They were not aware that since its introduction in 2013 they were liable to a further tax on their income called High Income Child Benefit Charge (“HICBC”). HICBC is designed to recoup some or all that Child Benefit received by the household through taxing the income of the higher earner of the couple.
[2] Imagine that these circumstances have continued since 2013 to the present day but HMRC only recently become aware of them. Can HMRC now seek payment of that HICBC from the taxpayer several years after it was first due through what is called a “discovery” assessment to income tax?
[3] That is the main question raised in this appeal. It is a particularly important one because its outcome may yet affect a number of taxpayers. They may be called upon to repay significant sums by way of the HICBC tax, equivalent to the child benefit their household received many years before. It is an issue of real importance to HMRC because they have raised a number of “discovery” assessments in relation to unpaid HICBC and the extent of their “discovery” powers will affect HMRC's ability to recover a large amount of revenue that they now seek.
[4] It is not the first time the First-tier Tribunal has had to consider the issue because there has been a long line of cases where the Tribunal has considered the HICBC. However, most of the Tribunal's decisions have concentrated upon HICBC in the context of penalties raised for the taxpayer carelessly or deliberately not paying HICBC. Thus, the Tribunal has primarily concentrated on the consideration of issues such as reasonable excuse for that failure.
[5] However, in this case and some more recent cases, the Tribunal has had to consider whether HMRC is able to make the assessment to tax itself. The Tribunal is specifically asked to consider whether the provisions of section 29(1)(a) of the Taxes Management Act 1970 enable HMRC to raise “discovery” assessments in respect of HICBC where it has not been self-assessed or notified to HMRC by a taxpayer.
[6] The current state of the law in unclear. There are competing conclusions of the First-tier Tribunal. In Robertson [2018] TC 06410 (which was overturned by the Upper Tribunal on a different ground in [2019] BTC 519) and Wilkes [2020] TC 07740, the Tribunals decided that s. 29(1)(a) TMA 1970 did not empower discovery assessments in relation to HICBC where there had been a failure to notify HMRC of a HICBC liability. In Haslam [2020] TC 07786 and Hill [2020] TC 07798 the Tribunals came to the opposite conclusion, that section 29(1)(a) does enable discovery assessments in those circumstances, but they arrived at the same result for different reasons.
[7] While each of these decisions are thoughtful and thorough in their reasoning and worthy of considerable respect, they carry only persuasive weight and are not binding on this Tribunal. As the First-tier Tribunal observed in Haslam and Upper...
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