Neutral Citation: [2025] UKFTT 456 (TC)
Case Number: TC09493
FIRST-TIER TRIBUNAL
TAX CHAMBER
In public by remote video hearing
Appeal reference: TC/2022/13141
INCOME TAX - High Income Child Benefit Charge - liability to the charge - assessments valid –appeal dismissed
Heard on: 15 April 2025
Judgment date: 16 April 2025
Before
TRIBUNAL JUDGE NIGEL POPPLEWELL
MR JULIAN SIMS
Between
ANDREW BROWN
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: In person
For the Respondents: Miss Anika Aziz litigator of HM Revenue and Customs' Solicitor's Office
DECISION
INTRODUCTION
1. This appeal concerns the High Income Child Benefit Charge ("HICBC" or "the charge"). The appellant had originally been assessed ("the assessments") to HICBC for the tax years 2015/2016 to 2019/2020 together with penalties ("the penalties") for failing to notify chargeability under section 7 Taxes Management Act 1970 ("TMA"). The assessments amounted in total to £5,401. The penalty assessments were for £972.60.
2. The assessments were issued on 17 May 2022. In October 2024 HMRC appeared to accept that the appellant's behaviour as regards the charge was not careless and that he had a reasonable excuse for the penalties. Accordingly, they accepted that the four year limitation period for issuing a discovery assessment applied with the consequence that the only assessments which were under appeal were those in respect of the tax years 2018/2019 and 2019/2020 ("the two relevant tax years"). The charges in each of those years is £1,076.
3. Furthermore, HMRC no longer asserted that the penalties were due.
4. So, the hearing was much simplified, and we were required only to decide whether the assessments for the two relevant tax years were valid in time assessments, and if they were, whether the appellant could establish that they overcharged him.
5. For the reasons given below, we have found that the assessments for those years were valid in time discovery assessments, and did not overcharge the appellant. We have therefore dismissed the appeal against the assessments for those two years. If formally required, we uphold his appeal against assessments for the preceding three years, and against the penalties.
THE LAW
6. There was no dispute between the parties as to the relevant legislation which we summarise below.
7. 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:
(1) His adjusted net income ("ANI") for the year is greater than £50,000.
(2) His partner's ("partner" is defined in section 681G) ANI is less than his.
(3) He or his partner are entitled to child benefit.
8. The assessments have been raised pursuant to HMRC's discovery assessment powers as provided in section 29 TMA. Accordingly, HMRC bear the burden of establishing that they have discovered that an amount of income which ought to have been assessed to income tax has not been so assessed.
9. In the case of HMRC v Jason Wilkes [2020] UKUT 150 (TCC) ("Wilkes") the UT determined that HMRC had no power to make a discovery assessment in respect of the HICBC on the basis that the child benefit was not an amount of income which should have been assessed to income tax. The HICBC is a free-standing charge to tax.
10. Following the decision in Wilkes the provisions of section 97 Finance Act 2022 ("Section 97") were enacted such that section 29 TMA was amended providing for a discovery assessment to be issued where "an amount of income tax ... ought to have been assessed but has not been assessed" thereby providing for HICBC to be assessed by way of discovery assessment. Whilst the provision is generally only prospective Section 97 also provides that where a discovery assessment has been made to collect HICBC prior to tax year 2021/22 the provision is retrospective unless 1) pursuant to Section 97(5) a notice of appeal was given to HMRC in respect of the assessment prior to 30 June 2021 and the Wilkes basis of challenge was asserted in that appeal on a date prior to 30 June 2021; or 2) pursuant to Section 97(6) a notice of appeal was given to HMRC in respect of the assessment prior to 30 June 2021, the appeal was the subject of a temporary pause which occurred prior to 27 October 2021 and "it is reasonable to conclude that the temporary pausing of the appeal occurred (wholly or partly) on the basis that [the Wilkes issue] is, or might be, relevant to the determination of the appeal". The appeals which are subject to the retrospective statutory amendment are defined as "protected appeals". In this regard the protection offered is to HMRC and not the taxpayer.
11. 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.
12. By virtue of section 34(1) TMA, HMRC may raise a HICBC discovery assessment at any time within 4 years of the end of the tax year to which it relates. They also have the power, in consequence of section 36(1A) TMA, to raise the assessment within a period of 20 years of the year of assessment where the loss of tax arises because of a failure to notify liability to a charge to tax under section 7 TMA. That section provides that if a person is chargeable to income tax, they must notify HMRC of that fact within 6 months after the end of the tax year. But if their income consists of PAYE income and they have no chargeable gains they are not required to notify their chargeability to income tax unless they are liable to the HICBC. In consequence of the provisions of section 118(2) TMA, the 20-year assessment provisions do not apply where the taxpayer establishes a reasonable excuse for the failure to notify their liability under section 7 TMA. However, HMRC will always have a period of 4 years in which to make a discovery assessment for a protected assessment.
EVIDENCE AND FACTS
13. We were provided with a bundle of documents. Officer Jennifer Harrison ("Officer Harrison") and Officer Richard Lambert had submitted witness statements which they adopted. The appellant mounted no challenge to their evidence. The appellant gave oral evidence on his own behalf. From this evidence we find as follows:
(1) Throughout the tax years in question, the appellant was an employee.
(2) Prior to the tax years in question, the appellant had been registered into the self-assessment regime in December 2009 but left it in November 2011.
(3) The appellant's spouse has been in receipt of child benefit on and from 21 May 2007.
(4) The appellant's ANI for the two relevant tax years as evidenced by his PAYE records (as subsequently adjusted) exceeded £50,000 in each of those years.
(5) On 11 January 2021 HMRC issued a "nudge" letter ("the nudge letter"). That letter was addressed to the appellant at his home address. The nudge letter set out the circumstances in which the appellant would have to pay the charge and advised him to check whether he needed to pay the charge. A link to a website was given where he would find more information.
(6) On 4 June 2021 Officer Harrison selected the appellant for a compliance check. She reviewed his file and saw that the nudge letter had been sent to his home address. She identified that his wife was claiming child benefit. She reviewed his PAYE records, and taxable benefits declared by his employer. She calculated the appellant's ANI for the tax years ending 5 April 2016 to 5 April 2020 inclusive. She then used the HMRC online calculator for each of these years to see whether HICBC was due from the appellant. She identified that the appellant was due to pay an additional charge of £5,401 for those tax years. For the two relevant tax years it was her view that the ANI was £71,297.55 for 2018/2019, and £64,471.23 for 2019/2020. She then authorised the issue of an opening letter. We find as a fact that it was Officer Harrison who made the discovery of the tax loss for those tax years and that she made that discovery on 4 June 2021.
(7) That opening letter was dated 18 May 2021 and was sent to the appellant's home address. In it, HMRC explained that their records showed that the appellant was liable to the HICBC and that they considered that he was liable to a charge of £5,401 for the tax years in question. It also explained why late payment penalties and interest might be due.
(8) On 14, 15 and 16 June 2021 the appellant called HMRC to discuss his liability. He followed up these calls by confirming his liability to the charge and disclosing his ANI figures for the tax years in question, on 1 July 2021.
(9) On 22 April 2022, HMRC wrote to the appellant notifying him that discovery assessments would be raised for the charge for those tax years. The assessments were subsequently raised on 17 May 2022, and the penalty assessments on 18 May 2022.
(10) In HMRC's review conclusion letter dated 21 September 2022, the reviewing officer accepted that the ANI figures for the two relevant tax years were lower than those which had been set out in the assessments for those years. He adjusted them to take into account car benefits and pension contributions. The ANI for 2018/2019 was reduced to £61,953. The ANI for 2019/2020 was reduced to £61,471 But even following those adjustments in both cases, the ANI was more than £60,000 in each year.
(11) On 19 October 2022 the appellant notified his appeal to the tribunal.
DISCUSSION
14. There is only one matter which we have to decide, namely whether HMRC have made a valid discovery and issued a valid assessment(s) pursuant to that discovery which they have properly served on the appellant. If they can establish that, then the burden of proof switches to the appellant to show that the assessments overcharged him. In both cases, the standard proof is the balance of probabilities.
15. As we have said above, the appellant did not make any challenge to the witness evidence of Officer Harrison, the assessing officer. We have found that she made a valid discovery on 4 June 2021. It is our view that the assessments dated 17 May 2022 were validly issued pursuant to that discovery. They were also served on the appellant who has not denied receipt.
16. The figures in the assessments differ from those in the review conclusion letter. The figures in the assessments were reflected in HMRC's statement of case which Miss Aziz said were the adjusted figures following adjustments for car benefits and pension contributions. This seems contrary to the conclusions of the review conclusion letter which, having taken those matters into account, had reduced the ANI of the two relevant tax years, to the figures stated at [13(10)] above. But nothing turns on this given that the ANI for both of those years is greater than £60,000 whether on the original figures or on the subsequently adjusted figures.
17. And indeed, the appellant did not challenge either set of figures, thus accepting that the ANI for the two relevant taxes was indeed more than £60,000.
18. The appellant's case in his notice of appeal focused very much on a dissatisfaction with the HICBC legislation and its application by HMRC. In his view he had been treated unfairly (indeed his language is considerably stronger than had) and the impact of the assessments has been detrimental to both his physical and mental health, and that of his family.
19. At the hearing it was clear that the appellant did not fully understand why the original assessments and the penalty assessments had been altered such that only two years are now subject to the charge, and none of the years are subject to penalties. We explained this to him (with the approval of Miss Aziz). It is one of the reasons why we have set out, at some length, the law in relation to discovery assessments in the context of HICBC, and time limits relevant thereto.
DECISION
20. In light of our findings of fact regarding the validity of the discovery and the assessments for the two relevant tax years, and the acceptance by the appellant that in each of those years his ANI was, as asserted by HMRC, more than £60,000, we have no alternative other than to dismiss the appellant's appeal against the assessments for the two relevant tax years.
21. What this means in financial terms is that the appellant is liable to the charge for those tax years in a total amount of £2,152. He may also be liable for interest on that amount. He has no liability to the charge for the other tax years, nor to penalties for any of the tax years which were originally assessed.
RIGHT TO APPLY FOR PERMISSION TO APPEAL
22. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.
Release date: 16th April 2025