< Go Back High Income Child Benefit Charge (HICBC) is not Income for Discovery Purposes Posted: Jul 2, 2021HMRC v Jason Wilkes [2021] UKUT150 ,This case concerned discovery assessments related to the HICBC and the construction of the legislation for 'discovery assessments' under s.29 TMA 1970. The tax involved was small but, the case had wider significance concerning when the discovery provisions may be used by HMRC.
The appellant had been assessed to the HICBC under the discovery provisions at s.29(1)(a) TMA 1970 for three tax years.
For the years in question his wife had claimed
child benefit, his Adjusted Net income exceeded £50,000 but he had not submitted a tax return or been issued with a notice to
file one by HMRC. He appealed against the assessments to the First Tier Tribunal (FTT) who decided that although he was
liable to the HICBC and HMRC had made a discovery, the assessments were
not validly raised because the officer in question had not discovered any
“income which ought to have been assessed to Income Tax HMRC subsequently appealed on the basis that:
No return was ever submitted so the income and was not assessed nor the HICBC considered. HMRC made a discovery that there was income that ought to
have been assessed to Income Tax and had not been so assessed, and
s.29(1)(a) TMA applied. S.29 should be interpreted purposively so that it permitted a
discovery assessment of “amounts liable to income tax” rather than
'income'. There was an obvious drafting error in s.29 and the FTT had erred in
law by failing to correct it. If a taxpayer submitted a tax return but
omitted the HICBC a discovery assessment could be raised. It would be
unjust if discovery could not apply if the same taxpayer had either failed to notify chargeability and had not filed a return at all. The Upper Tribunal (UT) dismissed HMRC’s appeal.
HMRC had expressed the purpose of s.29 too
widely; its purpose is to assess income and not amounts of Income Tax
and it is not intended to cover any shortfall of Income Tax. S.29 stands independently from and long predates the Self
Assessment (SA) system. It is not intended to be part of
the SA system. The UT noted that when SA was introduced changes were made to s.29 but parliament did not choose to amend it to assess ‘amounts of tax’
instead of 'profits or income’. HMRC administer taxes and child benefit so were far better placed to identify, from their
records, when additional tax may be due and to then issue a notice to file. In fact,
they identified the discrepancy in this case in exactly that fashion. Thus:
HMRC could have issued a notice to file a return and then if one was not filed issue a determination to Income Tax under s.28C TMA. Alternatively, a simple assessment could
have been issued under s.28H which would have had a twenty-year time
limit as there was a failure to notify liability to tax. The UT specifically held that, there was no discovery of 'income that ought to have been assessed'. The discovery was of a failure to pay the HICBC. There was no obvious drafting error and if s.29
required amendment this would be more than correcting an error so it woudl require judicial legislation and was thus outside the powers of the FTT. However, in considering
parliament’s intention and the fact that s.29 is not part of SA, the UT
was not satisfied that any such amendment was required. Although this case is focussed on the matter of discovery in the context of the HICBC it does clarify the restriction contained in HMRC's discovery provisions under s.29 TMA 1970 and corrects HMRC's overly wide interpretation.
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