FTT confirms pre-Wilkes HICBC assessments were invalid

In James Fera v HMRC [2023] TC08986, the First Tier Tribunal (FTT) found that High-Income Child Benefit Charge (HICBC) discovery assessments raised by HMRC were retrospectively protected under Finance Act 2022. The assessments were not valid and the appeal was allowed.

• Mr and Mrs Fera had a daughter in 2003. Mrs Fera claimed Child Benefit.
• When the HICBC was introduced in 2012, Mr Fera was earning in excess of £50,000, including benefits and bonuses.
• Mr Fera was taxed under PAYE and had never filed a Self Assessment tax return.
• Both Mr and Mrs Fera were completely unaware of the HICBC.
• In December 2019, they received a ‘nudge letter’ from HMRC, informing them that they were potentially unable to claim Child Benefit tax-free. In response to the letter, Mrs Fera called HMRC, cancelled the Child Benefit and was told there was no further action to be taken.
• In February 2021, Mr Fera received Discovery Assessments and accompanying Penalties for the tax years 2012-13 to 2019-20.
• In March 2021, Mr Fera wrote to HMRC ‘formally appealing’ the assessments and penalties.
• On review, the penalties were cancelled along with the assessments up to and including 2015-16. The remaining assessments were upheld by HMRC. Mr Fera appealed to the First Tier Tribunal (FTT).

The FTT found that:

• As of March 2021, according to the Court of Appeal in HMRC v Jason Wilkes [2022] EWCA Civ 1612, s.29 Taxes Management Act 1970 stated that discovery assessments could be raised where income had not been correctly assessed. The HICBC was not income and so could not be subject to a Discovery Assessment.
• As a result of Wilkes, s.97 Finance Act 2022 amended s.29 to include Income Tax that had not been correctly collected for 2021-22 onwards.
  • Discovery Assessments applying to the HICBC before this could still be valid if the 'relevant protected assessment' conditions as set out in s.97 were met.
  • Part of those conditions was that the assessment could not be subject to an appeal lodged before 30 June 2021 on the basis that the assessment was invalid due to the original wording of s.29.
• Based on the agreed facts, Mr Fera was liable to the HICBC.
• The Discovery Assessments were invalid as the original wording of s.29 required either:
  • Income not assessed to tax.
  • An insufficient tax assessment.
  • An excessive amount of relief to be claimed.
• The HICBC, as established, was not income. Mr Fera was never assessed to tax (being taxed under PAYE) and Child Benefit was not a tax relief.
• HMRC were wrong to argue that Mr Fera's appeal did not raise this as an issue. He had no representation, and no legal training, as such, his appeal was set out in generic terms. He did challenge the decision which must be interpreted as challenging the validity of the assessment, as it was otherwise factually correct.

The appeal was allowed.

Useful guides on this topic

High-Income Child Benefit Tax Charge
What is the High-Income Child Benefit Charge? Who pays it? Can you appeal against an assessment? Are there any useful cases from the tax tribunals? 

Discovery assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences? Case law tracker.

HMRC wrong to back-date High-Income Child Benefit Charge assessments
In HMRC v Jason Wilkes [2022] EWCA Civ 1612 the Court of Appeal (CoA) found that HMRC was unable to use the Discovery Assessment provisions to back-date assessments for unpaid High-Income Child Benefit Charges in past years. The charge is not 'income' for tax purposes.

External link

James Fera v HMRC [2023] TC08986