Tribunal Upholds High Income Child Benefit Charge and Penalties in Newall v. HMRC Case

Citation: [2024] UKFTT 47 (TC)
Judgment on

Introduction

The First-tier Tribunal (Tax Chamber) case of Andrew Newall v. The Commissioners for HMRC ([2024] UKFTT 47 (TC)) offers critical insight into the application and administration of income tax charges in the UK, specifically concerning the High Income Child Benefit Charge (HICBC). The tribunal analyzed legal principles relating to the chargeability of HICBC and the imposition of penalties for non-compliance. This article dissects the legal analysis performed by the Tribunal, elucidating on the principles applied to the appellant’s circumstances.

Key Facts

In this case, Andrew Newall appealed against an assessment for HICBC for tax years 2017/2018 to 2019/2020 and corresponding penalties for failing to notify HMRC under section 7 Taxes Management Act 1970 (TMA). The total charged amount was £2,248, with penalties of £604.08. Newall’s adjusted net income exceeded £50,000 per year which made him liable for HICBC according to section 681B Income Tax (Earnings and Pensions) Act 2003. The assessments were conducted under HMRC’s discovery powers per section 29 TMA, and the case also examined the changes brought by section 97 Finance Act 2022 in response to HMRC v. Jason Wilkes [2020] UKUT 0150 (TCC).

Several key legal principles underpin the tribunal’s decision:

  1. Discovery Assessment Validity: The court considered the HMRC’s power to perform a discovery assessment for HICBC, taking into account the Finance Act 2022 amendments following the Upper Tribunal’s decision in Wilkes.
  2. Requirement to Notify: Pursuant to section 7 TMA, there is an obligation on taxpayers to notify HMRC of chargeability unless purely earning PAYE income without additional chargeable gains or liability to HICBC.
  3. Reasonable Excuse: The tribunal referenced Christine Perrin v. HMRC [2018] UKUT 156 when discussing the reasonable excuse defense, an objective test determining whether a taxpayer’s ignorance or other asserted facts constituted a reasonable excuse for failing to comply with tax obligations.
  4. Penalty Assessment: The tribunal took into consideration the principles for the imposition of penalties for failure to notify under Schedule 41 Finance Act 2008.

Outcomes

The tribunal made key determinations:

  1. Chargeability: Newall was liable for HICBC, falling squarely within statutory provisions after the tribunal found the discovery and assessment process by HMRC was executed within the applicable time limits.
  2. Penalty Liability: Although Newall claimed ignorance of his tax compliance obligations as a reasonable excuse, the tribunal found that after receiving the ‘nudge letter’ from HMRC, any reasonable excuse ceased as he did not engage promptly with HMRC thereafter. Thus, he was held liable for penalties.
  3. Special Circumstances: No special circumstances were determined that would justify a special reduction in Newall’s penalty.

Conclusion

The case highlights the strict approach the tribunal takes with compliance in tax law, emphasizing the taxpayer’s responsibilities to remain informed about their tax liabilities and to timely disclose such liabilities to HMRC. Despite Newall’s claims of being previously unaware of his HICBC obligations, the tribunal was guided by the objective “reasonable excuse” test from Perrin and concluded there was no reasonable excuse following the issuance of the ‘nudge letter.’ This case reiterates the consequences of non-compliance with tax obligations and the narrow interpretation of “reasonable excuse” within the context of HICBC, ultimately dismissing Newall’s appeals against the charge and penalties.

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