Robertson v Revenue and Customs: No Penalty for Failure to Notify HICBC without Valid s29 Assessment

Introduction

Robertson v Revenue and Customs ([2018] UKFTT 158 (TC)) is a pivotal case adjudicated by the First-tier Tribunal (Tax) in the United Kingdom. The appellant, Mr. James Robertson, contested penalties imposed by HM Revenue and Customs (HMRC) for failing to notify his liability to the High Income Child Benefit Charge (HICBC) for the tax years 2012-13, 2013-14, and 2014-15. This case scrutinizes the mechanisms through which HMRC enforces tax notifications and the validity of penalties in the absence of specific types of assessments under the Taxes Management Act 1970 (TMA).

Summary of the Judgment

The Tribunal examined whether Mr. Robertson was obligated to notify HMRC of his liability to the HICBC and whether HMRC's subsequent penalty assessments were valid. The key findings include:

Mr. Robertson did not receive the necessary HMRC correspondence (awareness letters or SA 252) prompting him to notify HMRC of his HICBC liability.
HMRC’s reliance on s29 assessments to impose penalties was flawed because HICBC is not classified as income under the relevant tax legislation.
Without a valid s29 assessment, the potential lost revenue (PLR) was non-existent, rendering the penalties unjustifiable.
The Tribunal ultimately canceled the penalty assessments, highlighting procedural inadequacies in HMRC’s approach.

Analysis

Precedents Cited

The judgment references HMRC v Raymond Tooth [2018] UKUT 38 (TCC), where similar issues regarding outdated or 'stale' assessments were discussed. This precedent influenced the Tribunal’s view on the validity of HMRC’s penalty assessments.

The Tribunal also explores the legislative framework surrounding HICBC, particularly focusing on amendments made by the Finance Act 2012 to both the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and the Taxes Management Act 1970 (TMA). These amendments clarify the nature of HICBC and its treatment within tax assessments.

Legal Reasoning

The Tribunal delved into the statutory interpretation of TMA 1970 and ITEPA 2003, emphasizing that HICBC does not constitute income in the traditional sense. Consequently, it falls outside the purview of s29 TMA assessments, which are applicable primarily to income-related tax liabilities.

Key points in the Tribunal’s reasoning include:

Obligation to Notify: Under s7 TMA, individuals subject to HICBC must notify HMRC of their liability. However, without a valid s29 assessment, there is no basis for calculating PLR.
Validity of s29 Assessments: HICBC, not being classified as income, cannot be subject to s29 assessments. Therefore, HMRC's attempt to impose penalties based on such assessments was legally unsound.
Potential Lost Revenue (PLR): The Tribunal determined that PLR was nonexistent in this context because the HICBC is not captured under the standard income assessments that s29 pertains to.

Impact

This judgment has significant implications for both taxpayers and HMRC:

For Taxpayers: It underscores the importance of ensuring that HMRC correspondence is received and acted upon. However, it also provides a safeguard against unjust penalties when procedural requirements, such as valid assessments, are not fulfilled by HMRC.
For HMRC: The Tribunal’s decision highlights the necessity for HMRC to align its penalty enforcement mechanisms with the correct legislative provisions. Specifically, HMRC must recognize that HICBC does not fall under s29 assessments and adjust its processes accordingly.
Legal Precedent: Establishes a clear distinction in how HICBC is treated within the tax assessment framework, potentially influencing future cases where non-traditional tax charges are involved.

Complex Concepts Simplified

s29 Assessment

An s29 assessment under the Taxes Management Act 1970 (TMA) refers to an HMRC process used to assess additional tax liabilities that were not reported or underreported by the taxpayer. This mechanism typically applies to traditional income sources like employment or self-employment earnings.

High Income Child Benefit Charge (HICBC)

The HICBC is a tax charge applicable to individuals or their partners who receive child benefit and have an adjusted net income exceeding £50,000. Unlike regular income, HICBC is a charge against the benefit received and is not classified as traditional taxable income, which affects how it is assessed and collected.

Potential Lost Revenue (PLR)

PLR refers to the amount of unpaid tax that HMRC estimates it has lost due to a taxpayer's failure to notify their liability within the stipulated timeframe. It serves as the basis for calculating penalties under relevant tax laws.

Conclusion

The Robertson v Revenue and Customs case serves as a critical reminder of the importance of aligning tax enforcement actions with legislative frameworks. By determining that HMRC cannot validly impose penalties for failure to notify the HICBC without a corresponding valid s29 assessment, the Tribunal reinforced the necessity for clear statutory interpretation. This decision not only protects taxpayers from unjust penalties but also mandates HMRC to refine its assessment and penalty procedures, ensuring they are legally sound and procedurally fair.

Ultimately, this judgment provides valuable insights into the treatment of non-traditional tax charges like HICBC and sets a precedent for future cases involving similar complexities within tax law.