Introduction

The case of Revenue and Customs v. Robertson ([2019] UKUT 0202 (TCC)) presents a significant development in the interpretation of penalty legislation related to the High Income Child Benefit Charge (HICBC). This commentary delves into the intricacies of the judgment, exploring the central issue of "potential lost revenue" (PLR) and its implications for taxpayers and HMRC alike.

Case Overview

The appellant, HMRC (The Commissioners for Her Majesty's Revenue & Customs), contested a decision made by the First-tier Tribunal (FTT) in the case of James Robertson. Mr. Robertson was penalized for failing to notify his liability under the HICBC for three consecutive tax years (2012-13, 2013-14, and 2014-15). The penalties amounted to £528, calculated as a percentage of the alleged PLR.

The central issue revolved around the correct interpretation of "potential lost revenue" within the relevant penalty legislation. HMRC argued that the penalties should be upheld based on the taxpayer's liability, regardless of whether an official assessment had been made.

Summary of the Judgment

The Upper Tribunal (Tax and Chancery Chamber) reviewed the FTT's decision, which had canceled the penalties on the grounds that PLR was dependent on a valid assessment under section 29 of the Taxes Management Act 1970 (TMA). The Tribunal identified that HICBC does not qualify as "income" under section 29 TMA, rendering the discovery assessments invalid.

However, HMRC appealed this decision, emphasizing the distinction between tax liability and tax assessment. The appeal was allowed, with the penalties being recalculated at 10% of the PLR, thereby restoring the original punitive measures against Mr. Robertson.

Analysis

Precedents Cited

The judgment heavily referenced historical case law to substantiate the distinction between tax liability and assessment:

• Whitney v Commissioners of Inland Revenue [1926] A.C. 37: Established the fundamental stages in the imposition of tax—liability, assessment, and recovery.
• R (Derry) v Revenue & Customs Commissioners [2019] UKSC 19: Reinforced the distinction between liability and assessment, affirming that liability exists independently of assessment.
• Bloomsbury Verlag GmbH v HMRC: Supported the assertion that liability precedes assessment in the tax imposition process.

These precedents underscored HMRC's argument that PLR should be based on liability rather than the presence of a formal assessment.

Legal Reasoning

The Tribunal's legal reasoning pivoted on the interpretation of "potential lost revenue" within the penalty framework:

• Definition of PLR: According to Schedule 41, Paragraph 7, PLR is defined as the amount of income tax or capital gains tax to which a person is liable but remains unpaid by 31 January following the tax year.
• Liability vs Assessment: The Tribunal recognized that liability—the obligation to pay tax—exists independently of any assessment. Therefore, even in the absence of a formal section 29 TMA assessment, the taxpayer's liability should trigger the calculation of PLR.
• Misinterpretation by FTT: The FTT had erroneously confined the calculation of PLR to instances where a valid assessment existed under section 29 TMA. The higher Tribunal corrected this by affirming that PLR should be based on liability, irrespective of assessment status.

Impact

The judgment clarifies the application of penalty calculations under Schedule 41, emphasizing that the existence of tax liability suffices for determining PLR. This has broader implications:

• For Taxpayers: Individuals are now more clearly informed that their failure to notify liabilities, especially under schemes like HICBC, can result in penalties based solely on incurred liabilities, without the necessity of an assessment.
• For HMRC: Reinforces HMRC's enforcement mechanisms, allowing for penalties to be imposed where liability exists, thereby strengthening compliance efforts.
• Legal Precedent: Sets a clear legal standard distinguishing between liability and assessment in the context of penalty calculations, which will guide future tribunal and court decisions.

Complex Concepts Simplified

Conclusion

The Revenue and Customs v. Robertson judgment serves as a pivotal reference point in understanding the delineation between tax liability and assessment within penalty frameworks. By affirming that PLR is grounded in liability rather than the presence of an assessment, the Tribunal has provided clearer guidance for both taxpayers and HMRC.

This decision not only reinstates the penalties against Mr. Robertson but also reinforces HMRC's authority to impose penalties based on unpaid liabilities. Moving forward, taxpayers must ensure compliance with notification obligations to avoid such repercussions, and HMRC can confidently apply penalties where liabilities are evident, even in the absence of formal assessments.

Ultimately, this judgment contributes to a more coherent and predictable tax penalty landscape, aligning legal interpretations with established precedents and statutory provisions.