The Court of Appeal (CoA) has upheld decisions by the First-tier Tribunal and the Upper Tribunal concerning the issuance of discovery assessments on a taxpayer who had contacted HMRC after receiving a nudge letter from them.  The taxpayer earned more that £50k and his wife had claimed child benefit and under the changes to the tax system made in 2012 he was liable to the High Income Child Benefit Charge (HICBC).  After the taxpayer spoke to HMRC they issued discovery assessment to the taxpayer who subsequently appealed them.

At the time the relevant legislation, section 29 of the Taxes Management Act 1970, stated that HMRC could issue assessments for a tax year where “income which ought to have been assessed to income tax” had not been assessed to income tax.

The lower tribunals had held that the HICBC was not income and therefore HMRC could not raise the assessments.  The CoA has agreed with the lower tribunals holding that the HMRC didn’t, at the time have the power to issue the assessments.

HMRC had tried to argue that the CoA should rectify the legislation but the CoA held that to do so would be equivalent to the court writing legislation, a power reserved for Parliament and the court could only rectify legislation where the error was obvious.  This wasn’t a case of an obvious error and Parliament had many options in how the tax charge should be enforced.  The CoA referred to the unauthorised pension payment charges, that are similarly a tax charge not related to income, and found that Parliament had approved regulations to allows the raising of assessments in relation to these charges.

Earlier in 2022 Parliament enacted the Finance Act 2022 which has now changed the relevant section of the legislation to allow assessments to be raised against income tax charges as well as income and this legislation is retrospective, apart for cases that been appealed to HMRC before 30 June 2021.  The case concerned an assessment that was appealed before the deadline so was protected.  Further assessments by HMRC to people who haven’t declared the HICBC will now be legal where they are assessed under section 29 of the Taxes Management Act 1970.

The decision can be found at: The Commissioners for HMRC v Jason Wilkes – Find case law (nationalarchives.gov.uk)

Please contact us if you have any questions on income tax or the HICBC.  Many people are being caught out by the HICBC as it requires the higher earner to file self-assessment tax returns.  We can help with this compliance matter.