HMRC wrong to back-date High-Income Child Benefit Charge assessments

In HMRC v Jason Wilkes [2022] EWCA Civ 1612 the Court of Appeal (CoA) found that HMRC was unable to use the Discovery Assessment provisions to back-date assessments for unpaid High-Income Child Benefit Charges in past years. The charge is not 'income' for tax purposes.

This appeal was in respect of the High-Income Child Benefit Charge (HICBC) which turned on the statutory construction of the Discovery Assessment rules under s.29 TMA 1970. The amount of tax involved was small, however, the case has wider significance regarding when the discovery provisions can, and should, be used by HMRC and the taxpayer’s legal team agreed to act on a pro bono basis.

• For the relevant years, the taxpayer's wife had claimed child benefit.
• The taxpayer's Adjusted Net income exceeded £50,000 in the 2015, 2016 and 2017 tax years but he had not submitted tax returns or been issued with a notice to file.
• The taxpayer Appealed HMRC Discovery Assessments seeking to impose the HICBC.
  • The First Tier Tribunal (FTT) held that whilst he was liable to the HICBC and HMRC had made a discovery, the assessments were not validly raised.
  • The officer in question had not discovered any “income which ought to have been assessed to Income Tax” within s.29(1)(a) TMA as the HICBC was not income.
• HMRC appealed to the Upper Tribunal which upheld the decision of the FTT:
  • The discovery was of a failure to pay the HICBC, it was not a discovery of ‘amounts liable to Income Tax’.
  • There was no obvious drafting error in the legislation which should be corrected by the UT.

HMRC appealed to the CoA who found:

• The discovery provisions required “income which ought to have been assessed to Income Tax” to have been identified.
• The discovery provisions also required a link between income (or gains) and the resulting tax liability.
• HICBC was an extra charge to Income Tax for which the taxpayer was liable and not “Income” let alone “Income which ought to have been assessed to Income Tax”.
• It could not be inferred that the discovery provisions could operate whenever income or Capital Gains Tax was thought to be outstanding
• The CoA could not be abundantly sure that the intended purpose of the legislation was to include HICBC within the discovery provisions and it could not therefore ‘rectify’ the legislation accordingly.

HMRC’s appeal was dismissed.

Editor's note

Finance Act 2022 has changed this problem with the Discovery provisions, retrospectively: they can now be used to collect taxes on omitted High-Income Child Benefit Charge. See Discovery assessments.

Useful guides on this topic

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? 

Discovery assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences? Case law tracker.

S.8(1) notice to file a tax return
This guide examines the implications of a notice sent to an individual under s.8(1) TMA 1970 to file a tax return.

Penalties: Failure to Notify
What tax penalties apply if you fail to notify HMRC that you are chargeable to tax? Can they be appealed or reduced?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Grounds for Appeal: HMRC error or flaw
When can an error, mistake or procedural flaw made by HMRC provide a valid ground for making an appeal?

Do I have to file a tax return?
When does an individual need to file a tax return? In what circumstances do HMRC need to be notified that a tax return is required?

HICBC is not income under Discovery rules
In HMRC v Jason Wilkes [2021] UKUT150, the Upper Tribunal (UT) agreed that the High-Income Child Benefit Charge was not income to be Discovered under s.29 TMA 1970. HMRC had interpreted s.29 too broadly and could have used other powers to collect the tax due.

External link

HMRC v Jason Wilkes [2022] EWCA Civ 1612