Taxpayer win in HMRC v Wilkes: HMRC were not empowered to issue discovery assessments to recover HICBC
The Upper Tribunal (Falk J and Judge Herrington) have upheld the decision of the First-tier Tribunal: discovery assessments issued to Mr Wilkes were not validly raised because the officer in question had not discovered any “income which ought to have been assessed to income tax” within s 29(1)(a) of the Taxes Management Act 1970 (TMA). It was common ground that the legislation imposing the High Income Child Benefit Charge (HICBC) does not specify an amount of “income” upon which income tax is charged: the HICBC is one of several freestanding charges that are dealt with separately from the calculation of a taxpayer’s liability to income tax in respect of their own income under s.23 of the Income Tax Act 2007. Section 29(1)(b) and (c) TMA do not empower HMRC to issue discovery assessments in respect of the HICBC, where the individual has not filed a self-assessment tax return under s.8 TMA.
The Upper Tribunal held that s.29(1)(a) TMA was not apt to fill the gap: no application of the doctrine of purposive construction could lead to a different result. HMRC could have used powers that were available to them to charge Mr Wilkes to tax, but it is now too late for them to do so.
This decision will be of interest to thousands of taxpayers who were issued with discovery assessments in respect of HICBC. The decision has a potentially wider significance too: the principle that s.29(1)(a) TMA applies only to “income” is relevant to other freestanding tax charges, and in particular to certain charges under the pensions tax regime.
Marika Lemos represented Mr Wilkes. She was instructed by Collyer Bristow LLP and led by Richard Vallat QC.
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