Key Facts
- •Mr. Jason Wilkes' adjusted net income exceeded £50,000, and his wife received child benefit.
- •HMRC sent Mr. Wilkes a 'nudge' letter regarding the High Income Child Benefit Charge (HICBC).
- •Mr. Wilkes subsequently confirmed his high income to HMRC, leading to section 29 TMA 1970 assessments for HICBC.
- •Mr. Wilkes had not filed a tax return and HMRC did not impose a 'failure to notify' penalty due to a reasonable excuse.
- •Mr. Wilkes' income was subject to PAYE, typically negating the need for separate tax return notification (under section 7(3) TMA 1970).
- •The First-tier Tribunal (FTT) and Upper Tribunal (UT) ruled against HMRC's assessments.
- •HMRC appealed to the Court of Appeal, challenging the interpretation of section 29(1)(a) TMA 1970.
Legal Principles
Purposive statutory construction: Courts should interpret legislation in a way that best gives effect to its purpose, avoiding absurd results.
Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51
Statutory rectification: Courts can correct obvious drafting errors in legislation but only in plain cases and must be abundantly sure of the intended purpose and Parliament's likely action.
Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586
Section 29 TMA 1970 allows discovery assessments where income ought to have been assessed but wasn't, or where assessments are insufficient, or relief excessive. The assessment must relate to the specific tax loss.
Taxes Management Act 1970
HICBC is a charge to income tax, not income itself. The calculation depends on income, but it is not 'income' as defined in section 29(1)(a).
Income Tax (Earnings and Pensions) Act 2003, Chapter 8, Part 10; Finance Act 2012
Outcomes
Appeal dismissed.
HMRC's interpretation of 'income' in section 29(1)(a) TMA 1970 to include HICBC is not supported by the plain wording or purposive construction of the Act. The HICBC is not 'income' that ought to have been assessed; it's a separate charge, and the discovery assessment power is tied to specific tax losses, not general tax shortfalls.
Statutory rectification under Inco was not applied.
The court couldn't be 'abundantly sure' that Parliament intended section 29 TMA 1970 to apply to HICBC in cases where no return had been filed. There was no clear indication of parliamentary intent to cover this situation in the legislation or supporting documentation.