Tribunal Upholds Appeal in Douglas Lakeland v HMRC Case, Citing Reasonable Excuse for HICBC Notification Failure

Citation: [2023] UKFTT 978 (TC)
Judgment on

Introduction

In the case of Douglas Lakeland v The Commissioners for HMRC [2023] UKFTT 978 (TC), the First-tier Tribunal (Tax Chamber) addressed the issues surrounding the High Income Child Benefit Charge (HICBC), the liability for the charge, and the related penalty for failing to notify HMRC of chargeability. This article analyses the key topics discussed in the case and the legal principles applied, referencing other caselaw where necessary.

Key Facts

Douglas Lakeland (the appellant) was assessed for HICBC for tax years 2012/2013 to 2017/2018 and 2019/2020, and a penalty was levied for failing to notify HMRC of his chargeability. The Tribunal considered whether the appellant was on actual notice of the charge and his conduct upon realizing his chargeability. Crucially, the appellant claimed not to have received prior communications from HMRC that would have alerted him to his HICBC liability.

The Tribunal applied several legal principles:

  1. Objectively Reasonable Excuse: The decision hinged on whether the appellant had an ‘objectively reasonable excuse’ for his failure to notify HMRC, following the principles from Christine Perrin v HMRC [2018] UKUT 156 and The Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234. The principle is that ignorance of the law can be a reasonable excuse depending on whether it was objectively reasonable for a taxpayer to be unaware of their legal obligations.

  2. Wilkes Decision Impact: The case references HMRC v Jason Wilkes [2020] UKUT 0150 (TCC), where it was determined that HMRC had no power to make a discovery assessment for the HICBC because it was not an amount of income that should have been assessed to income tax. This was subsequently addressed by Section 97 Finance Act 2022, which retrospectively allowed such assessments under certain conditions.

  3. Procedural Regularity: Under the general principle of regularity and referencing the Interpretation Act 1978, the Tribunal presumed proper posting and delivery of documents unless proven otherwise by the appellant.

  4. Reasonable Delay in Rectification: As per William Archer v HMRC [2023] EWCA Civ 626, the appellant’s delay in responding to HMRC’s communications was considered. The Court of Appeal in Archer confirmed that a taxpayer is entitled to a short period to assess the situation before acting, and the taxpayer’s subsequent actions must not involve unreasonable delay.

Outcomes

The Tribunal concluded that Lakeland had a reasonable excuse for failing to notify HMRC of his HICBC chargeability, based on the finding that he had not received critical communications from HMRC. This reasonable excuse persisted until he was properly notified on 18 June 2021, leading to the successful appeal against the penalty and the assessments for the years preceding 2019/2020. However, the appeal against the HICBC assessment for the tax year 2019/2020 was dismissed, resulting in a liability of £1,788 for that year.

Conclusion

The Lakeland case illustrates the importance of the taxpayer having actual knowledge of their tax liabilities and the effectiveness of their response upon gaining such knowledge. The ruling reaffirms the concept that ignorance of tax law can be a reasonable excuse, provided that the taxpayer’s behavior upon notification is prompt and appropriate. Furthermore, the case underscores the retrospective legislative provision that can preserve HMRC’s powers in making discovery assessments, despite previous tribunal decisions. This decision illustrates the objective and factual approach taken by tribunals in determining reasonable excuse defenses in tax cases.