Three recent First Tier Tribunal (FTT) decisions consider whether ignorance of the law is a reasonable excuse for failing to notify charges under the High Income Child Benefit charge.
In Leigh Jacques v HMRC [2020] UKFTT 311, Bachir Mohamed Belloul v HMRC [2020] UKFTT 312 and Vivian Hill v HMRC [2020] UKFTT 316, penalty appeals concerning the HICBC were allowed by the First Tier Tribunal (FTT). Ignorance of the law was accepted as a reasonable excuse.
There were facts common to each case:
- The appeals allowed were in respect of penalties raised by HMRC for failure to notify of charges under the High-Income Child Benefit Charge (HICBC).
- HMRC contacted the appellants about the HICBC a number of years after the introduction of the charge in 2013 and subsequently assessed them to HICBC covering more than one tax year.
- The appellants were not within the Self Assessment regime and had not received any 'section 8' notice from HMRC requiring them to deliver a tax return. They were employees, paying their tax via PAYE in all the years assessed to HICBC.
- The appellants were conscientious taxpayers. There was no unreasonable delay in contacting HMRC to resolve matters once they became aware that the HICBC applied to them.
- The appellants were unaware of HMRC’s previous public campaigns, press releases and briefings on the HICBC. Sufficient evidence was not presented by HMRC to prove, on the balance of probabilities, that the appellants had been put on notice about the HICBC and the change in the law.
- The appellants argued on appeal to HMRC and the FTT that the penalties were raised unfairly as they had not received prior notification from HMRC about HICBC and they were unaware of the change in the law.
HMRC’s grounds for rejecting the penalty appeals focused on the much-cited aphorism that 'ignorance of the law is no excuse'.
- Christine Perrin v HMRC [2018] UKUT 156 was cited by HMRC to support this argument, although they excluded any reference to paragraph 82 of the judgement in that case which makes clear that, in certain circumstances, ignorance of the law can be a reasonable excuse.
- HMRC also argued that they have no obligation to notify individual taxpayers about changes in the law that are relevant to their specific circumstances.
- Excluding the Vivian Hill case, the appellants accepted that the HMRC assessments of HICBC were valid.
In the Vivian Hill case, the appellant rejected HMRC’s assessments of Income Tax (i.e. HICBC) covering three tax years. They believed these were invalid as the Child Benefit received was, in their opinion, not their own income but income received for their disabled child. On that basis, the appellant believed they should not be subject to any Income Tax in relation to Child Benefit.
The key findings by the FTT were:
- All of the Penalty appeals were allowed. The fact that each appellant was unaware of the introduction of the HICBC was accepted as a reasonable excuse.
- The much-cited aphorism that 'ignorance of the law is no excuse' does not always ring true. It is up to the FTT to decide whether it was objectively reasonable for the appellant, in their circumstances, to have been ignorant of the law.
- The FTT agreed that HMRC do not have an obligation to notify individual taxpayers about changes in law nor does it have a legal obligation to deliver a letter (SA 252) to individual taxpayers to inform them about HICBC and the actions to take if the charge applies.
- There is a significant difference in the level of awareness about HICBC between taxpayers who are within the Self Assessment regime and those who are not. It is unlikely that taxpayers who are within the Self Assessment regime can argue as a defence that they were unaware of the HICBC. HMRC guidance for completing your tax return effectively gives notice about the charge.
- Taxpayers who are not within the Self Assessment regime could potentially argue ignorance of the law as a defence particularly if they:
- Are employees.
- They did not receive a 'bounty pack' in relation to Child Benefit (as seen in the Vivian Hill case).
- They did not receive an SA 252 letter from HMRC.
- The FTT acknowledged that HMRC had committed to a highly commendable aim to help taxpayers get their tax affairs right but unfortunately, there is currently little evidence to show that HMRC have taken enough steps to work with employees (e.g. via their employers) as they have done with the self-employed to help them to get their tax affairs right in relation to HICBC.
- In the Vivian Hill case, the appellant’s appeal against HMRC’s assessments of HICBC was refused based on the purposive interpretation by the FTT of the law on HICBC.
Links
High-Income Child Benefit Tax Charge
What is the High-Income Child Benefit Charge? Who pays it? Can you appeal against an assessment? Are there any useful cases from the tax tribunals?
CPD: The High-Income Child Benefit Charge
Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal?
How to appeal a tax penalty (subscriber version)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?
External links
Leigh Jacques v HMRC [2020] UKFTT 311