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Very interesting HICB taxpayer DA win case

https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07740.html

Didn't find your answer?

A fascinating case where the taxpayer's wife deployed clever technical arguments & won! Good for her. Amazing stuff and well done to the sensible judge too (unlike most other FTT judges who are biased in favour of HMRC).

https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07740.html

Presumably the same argument can be used for the other step 7 income tax charges here:

http://www.legislation.gov.uk/ukpga/2007/3/section/30

e.g. see para 49 here: https://www.bailii.org/ew/cases/EWCA/Civ/2019/1719.html

This DA point seems to be supported in this case despite para 42 comments: https://www.bailii.org/uk/cases/UKUT/TCC/2020/120.pdf

[Edit 2.7.20] I should have added also that para 28 of UT Robertson (when read with paras 9 and 17(6)) appears to have left the issue open: https://assets.publishing.service.gov.uk/media/5d1b57b3e5274a08d85bee2e/...

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By Mr_awol
01st Jul 2020 14:46

Isn't it about time the HICBC threshold was given a (sizeable) uplift?

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By thehaggis
01st Jul 2020 16:39

I thought that s29(1)(b) covers the situation.
HICBC is a tax. An assessment to tax is or has become insufficient.

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Replying to thehaggis:
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By Justin Bryant
01st Jul 2020 17:50

If you read the above cases in full you'll see it's not that simple and it would not surprise me if HMRC had to change the law here as the floodgates are now open potentially.

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Replying to Justin Bryant:
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By whitevanman
01st Jul 2020 21:08

I rather think it is that simple. The problem is that HMRC has, for some years, been bending over backwards (and twisting more than a corkscrew) to avoid issuing notices to file, to people not otherwise within SA.
Had they sent a notice at the outset, they could have enforced it's submission and that would have included a self assessment. They could then have identified an assessment which had become insufficient etc. Failure to follow this route is what prevented S29 applying (in the tribunal's view).
Not sure it will "open the floodgates". More likely HMRC will require returns from more people affected by such charges (at least unless and until the FTT decision is overturned).

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Replying to Justin Bryant:
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By thehaggis
01st Jul 2020 22:48

In both this case and Robertson they concentrated solely on assessing income, and found that there was no income. But that is not the end of it. What about a case where a claim is found to be excessive and an assessment is needed to charge more tax without charging more income?

S29 (1) is not just about assessing income.

a) where income has not been assessed
b) where tax charged is insufficient
c) where a claim to relief is excessive

Given the comments by the UT in Robertson, this will be appealed.

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Replying to thehaggis:
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By whitevanman
02nd Jul 2020 09:13

The point was addressed by the tribunal, see my response to Justin (above).

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Replying to thehaggis:
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By Justin Bryant
02nd Jul 2020 09:51

But see this from Robertson UT para 28:
"...It is therefore not necessary for us to determine whether the FTT was right in its conclusion that the discovery assessments were not valid because HICBC is not “income”. We recognise that there are respectable arguments on both sides, but the issue should be fully considered and determined when it is dispositive to the case."

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By johnhemming
01st Jul 2020 19:28

I am surprised this has not been more widely publicised.

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Replying to johnhemming:
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By richard thomas
01st Jul 2020 22:09

It was only published yesterday!

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Replying to richard thomas:
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By johnhemming
02nd Jul 2020 08:53

It says release date 15th june

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Replying to johnhemming:
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By Justin Bryant
02nd Jul 2020 09:42

RT means "published" = BAILII publish date.

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By richard thomas
01st Jul 2020 22:08

Justin

You will not be surprised to learn that I agree with Zachary Citron’s decision in Wilkes given what I said in Robertson which Mrs Wilkes cited.

What I strongly disagree with is your statement that most other FTT judges are biased in favour of HMRC, much as I disagreed with a poster on this forum who suggested I was anti-HMRC.

The clue to the reason for many decisions which seem to unduly favour HMRC is in your post where you say “A fascinating case where the taxpayer's wife deployed clever technical arguments & won! Good for her.”

In an awful lot of these kind of cases clever (and potentially winning) technical arguments are never raised by an appellant. So much depends on the judge’s appetite for judicial activism. You can see this starkly in the Upper Tribunal – cases where an unrepresented appellant wins because the judge has raised an issue of their own motion are usually appealed to the UT, where almost invariably the original appellant does not appear or make submissions. So the UT is addressed only by HMRC’s barrister. It is not surprising that so many of these cases are overturned.

But I do not accept that any FTT judge is biased. There is a lack of tax knowledge in some, or good tax knowledge of complex issues but not of the ins and outs of TMA. Some judges are much happier with VAT, others (like me) with direct taxes. Some of these will do homework and research, others won’t but rely on what the parties tell them, Gone are the days of Sir Sidney Rowlatt.

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Replying to richard thomas:
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By Justin Bryant
02nd Jul 2020 10:26

Noted and I wouldn't want to argue with someone as eminent and knowledgeable as yourself, but if you read up on psychology you will see there are many unconscious biases that are simply part of human nature and kowtowing to authority is one of them* and I am basically saying some judges are less suspectable to that (or some are more alive to that) than others where HMRC is concerned (and the tax is of course paying their salary/pension). That said, I think the SC is very much politically (and/or morally especially where legitimate tax avoidance is in point) biased in favour of HMRC (and HMRC know it) and I would be very happy to argue with anyone on that point given their recent track record (with the odd exception) and pretty much all tax barristers I speak to agree with me on that at least (many tax barristers I speak to think some FTT judges are numpties to be absolutely frank about it and it’s hard to argue with that re certain judges).

Regardless, when fighting the state in its own courts the odds will always be against you for one reason or another, which is why cases like this are so refreshing and interesting.

*I once attended a tax seminar where a well known QC tax barrister who represents HMRC admitted (in a not immodest manner) to a room full of people that he exploits that bias to the full in a full-blown mentalist (à la Derren Brown) manner (and why wouldn’t he do so given that’s his job?)– all very interesting stuff.

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Replying to Justin Bryant:
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By whitevanman
02nd Jul 2020 11:43

Every time a judge makes a decision I don't agree with, that judge is automatically a numpty. I think if you were to ask people within HMRC they would argue that (particularly) FTT judges nowadays, are biased in favour of the, poor, taxpayer who is being downtrodden by the state. Psychology works both ways!
You have to accept the judge is in post to make these decisions and is only human. If (s)he gets it wrong, accept it as an honest mistake. After all, decisions can be appealed (in many cases).
More importantly, remember, it may be you who is wrong!

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Replying to whitevanman:
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By Justin Bryant
02nd Jul 2020 12:30

I am generalising to an extent of course, but it is generally correct what I say (and it's not just me who thinks the above, but also tax barristers at the sharp end as I made very clear*). Also, some judges (subconsciously possibly) make their HMRC bias explicit in their judgments.

* another QC said when he acts for HMRC in court it's like playing tennis and starting each game with the serve and at 40-love up. I am not kidding.

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Replying to Justin Bryant:
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By thehaggis
02nd Jul 2020 13:06

If barristers were right, we wouldn't have any need for courts or trials.

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Replying to Justin Bryant:
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By whitevanman
02nd Jul 2020 14:48

Every avoidance scheme I ever saw was supported by Counsel's opinion. Forgive me for not being convinced by your argument. Just because someone tells you something doesn't make it correct. It is just opinion.

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Replying to whitevanman:
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By Justin Bryant
02nd Jul 2020 15:34

This is a good example of another human bias in operation. I will leave you to research that one yourself, but it involves invisible evidence.

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Replying to Justin Bryant:
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By whitevanman
02nd Jul 2020 19:42

Sorry but this is a ridiculous comment. The rest of my reply is based on invisible wri...

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Replying to Justin Bryant:
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By Justin Bryant
27th Jul 2020 13:41

Another recent example of judge bias is here:

https://www.lawgazette.co.uk/news/judge-replaced-after-private-comments-...

I have cited other examples here over the years.

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Replying to whitevanman:
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By Tax Dragon
03rd Jul 2020 11:33

whitevanman wrote:

Every avoidance scheme I ever saw was supported by Counsel's opinion.

How many of those schemes won in court?

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Replying to Tax Dragon:
By SteveHa
03rd Jul 2020 13:00

Including the one Justin was involved with.....

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Replying to SteveHa:
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By Tax Dragon
03rd Jul 2020 13:13

Something tells me Justin and wvm have never worked together.

But if you're looking for bias, Counsel is in the pay of the client. Guess which side s/he (unconsciously?) favours.

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Replying to Tax Dragon:
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By whitevanman
03rd Jul 2020 13:47

I would hazard a guess at "less than 50%".
I would also add that there are a large number that never make it that far.
I'm not aware of ever having worked with Justin but would not have a problem doing so. I have worked with people who displayed similar traits. You simply have to acknowledge they will never accept they are wrong or change their position. It's easy working in tax. Anyone who disagrees with you is an idiot. Lose at tribunal, the judge is a numpty and / or didn't understand. Lose in a higher court it's because of the findings by the numpty. Ultimately, console yourself they got it wrong because it is just a matter of interpretation.
My solution to the Justin's is to agree to differ and move on.

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Replying to whitevanman:
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By Tax Dragon
03rd Jul 2020 14:19

I'm struggling to think of a single marketed scheme that has won when put to the ultimate test. (Of course there may be many schemes of which I am unaware.)

0% < 50%, correct.

I think some of the schemes (including, as Steve says, the loan scheme) deserved what they got; but the final logic on others does seem questionable. And that might be indicative of a bias (a desire to overturn schemes) such as Justin suggests. (I've long[*] suspected such a bias and I follow these things only loosely.)

[*] measured in Dragon years.

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Replying to Tax Dragon:
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By whitevanman
03rd Jul 2020 18:42

I seem to remember Barclays "buying a pipeline" rather than making a loan and that succeeded. There have been others.
I try to avoid attributing the outcome of cases to bias because, as I suggested in a previous post, one can always see "bias" on the other side, if you so choose.
That said, I would not be surprised if someone hadn't had a word with judges suggesting a negative attitude to avoidance would be appropriate. That though, would not result in bias (on the part of the judge). It's the sort of thing that happens often in the field of law. Such decisions are usually made by ministers and cannot be blamed on judges (nor, surprisingly, HMRC).

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Replying to whitevanman:
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By Tax Dragon
04th Jul 2020 09:35

So you think the decisions may be biased, but not the judges?

Too subtle for me.

But I think we should stop, I see no good coming from this. (But do post/let me know if you can think of a marketed scheme pertaining to taxation of individuals that hasn't fallen down in court.)

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Replying to Tax Dragon:
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By richard thomas
04th Jul 2020 21:16

Mayes, though it should have.

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Replying to whitevanman:
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By thehaggis
04th Jul 2020 11:57

It's the Dunning-Kruger principle (to keep the psychology train running). He's at the first spike in the curve.

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Replying to Justin Bryant:
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By Paul Crowley
02nd Jul 2020 19:46

Why does this not surprise us?

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Replying to Justin Bryant:
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By gillybean04
02nd Jul 2020 12:33

Justin Bryant wrote:

Noted and I wouldn't want to argue with someone as eminent and knowledgeable as yourself, but if you read up on psychology you will see there are many unconscious biases that are simply part of human nature and kowtowing to authority is one of them* and I am basically saying some judges are less suspectable to that (or some are more alive to that) than others where HMRC is concerned (and the tax is of course paying their salary/pension). That said, I think the SC is very much politically (and/or morally especially where legitimate tax avoidance is in point) biased in favour of HMRC (and HMRC know it) and I would be very happy to argue with anyone on that point given their recent track record (with the odd exception) and pretty much all tax barristers I speak to agree with me on that at least (many tax barristers I speak to think some FTT judges are numpties to be absolutely frank about it and it’s hard to argue with that re certain judges).

Regardless, when fighting the state in its own courts the odds will always be against you for one reason or another, which is why cases like this are so refreshing and interesting.

*I once attended a tax seminar where a well known QC tax barrister who represents HMRC admitted (in a not immodest manner) to a room full of people that he exploits that bias to the full in a full-blown mentalist (à la Derren Brown) manner (and why wouldn’t he do so given that’s his job?)– all very interesting stuff.

It's not so much kowtowing to authority but society conditioning us from birth to obey authority (parents, teachers, police etc). Except in the scenario you're talking about, HMRC are not the authority - the tribunal is.

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Replying to gillybean04:
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By Justin Bryant
02nd Jul 2020 13:03

But that is no use is it if the court/tribunal/judge is incompetent/useless for one reason or another as I regularly show here with examples?

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Replying to Justin Bryant:
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By gillybean04
03rd Jul 2020 14:20

Justin Bryant wrote:

But that is no use is it if the court/tribunal/judge is incompetent/useless for one reason or another as I regularly show here with examples?

That's an entirely different scenario from what you first proposed. That the courts side with them due to psychological influence of HMRC being authorative to them.

If courts/judges are incompetent at interpreting law, what chance does anyone else have?

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Replying to gillybean04:
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By gillybean04
03rd Jul 2020 14:24

I'm not saying they always make the right decision. I can normally follow the legal principles behind their judgements but every so often, there is a real head scratcher.

However, when it comes to law they are the authority on the matter. Even when they're wrong.

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By Justin Bryant
15th Jul 2020 15:33

I see this is only now being reported elsewhere.

https://www.litrg.org.uk/latest-news/news/200714-hmrc-told-high-income-c...

Again, well done Aweb for leading the way with interesting tax news!

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By Justin Bryant
14th Aug 2020 13:38

This other recent FTT case (disagreeing with the above case - for rather extreme/unusual reasons) decided things the other way.

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j11744/TC...

This Haslam decision looks wrong to me (a Kafkaesque decision almost). One obvious point is that TMA 1970 is littered with all kinds of absurdities due to the fact it’s simply creaking at the seams e.g. the recent legislation to fix voluntary tax returns (of course fixed in HMRC’s favour).

One can think of many more absurdities that are nothing to do with that e.g. say I’m a company director on PAYE and happen to file annual tax returns sent to me by HMRC (who wrongly believe all company directors have to file tax returns) and due to getting advice from an ex-HMRC mate down the pub, I omit a CGT liability on my tax return (re PPR or whatever). It was not dishonest/deliberate, as the director genuinely believed his friend and had no reason to doubt him, so at worst it's a careless mistake.

After 6 years HMRC cannot raise a DA. If another company director complains to HMRC that he shouldn’t be filing tax returns (and so doesn’t) and gets the same advice down the pub, he will have a 20 year DA period.

That’s equally absurd, yet you cannot imagine an FTT judge rewording legislation to fix that problem can you?

Also, the SC felt no need to reinterpret the SDLT legislation when determining the Project Blue case in favour of HMRC. On the contrary, they found it helpful to positively find that the SDLT legislation was absurd for allowing an unintended SDLT holiday in their reasoning for finding against the taxpayer!

I note Haslam has been followed here: http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11756/TC0...

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By richard thomas
16th Aug 2020 14:10

Haslam is a troubling case. What is really troubling about it to my mind is that it is the latest in a series of cases in which HMRC’s Solicitor’s Office has provided its in-house litigators or counsel with short extracts from case law which are wrenched out of context or are irrelevant to the arguments being made, hoping apparently to convince the FTT to take them seriously.

The nadir, so far, was reached in another recent HICBC case, Belloul v HMRC [2020] UKFTT 312 (TC) (Judge Nigel Popplewell), where HMRC referred to several cases as authority about the meaning of reasonable excuse and in particular for the proposition that ignorance of the law cannot be a reasonable excuse. One of the cases cited in extract was the UT’s decision in Christine Perrin v HMRC. Judge Popplewell pointed out that while HMRC had cited paragraph 81, the authoritative summary of the approach to be taken by the FTT to “reasonable excuse”, they failed to cite paragraph 82 which held that ignorance of the law can be a reasonable excuse.

The FTT also criticised HMRC for a wholly inapposite quotation from Nicholson v Morris*, a major back duty case from the 1970s, saying:

“48. It is disingenuous for HMRC to include such a self-serving extract in their skeleton argument and suggest that the issue which it is discussing is reasonable excuse.”

In Haslam HMRC argued:

“The proper construction must be workable. As Lord Dunedin observed in Whitney v the [sic] Commissioners of Inland Revenue (1925) 10 TC 88 at 110:

“Once that it is fixed that there is a liability, it is antecedently highly improbable that the statute should not go on to make that liability effective. A statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction makes that end unattainable.”

The situation in Whitney was far removed from this. In that case, it was agreed that Mr Whitney, a non-resident, was chargeable to super-tax on UK sources of income, but it was argued that he could not be required, as a non-resident, to make a return and so was not liable to pay it. There were, CIR said, provisions in the Income Tax Act 1918 to make agents for non-resident responsible for their non-resident principal’s obligations, so there could not be directly enforceable obligations.

In the case of HICBC there is no question about there being machinery in law to make the charge effective. For those in self-assessment, ie the self-employed, directors of companies and employees earning over £100,000, there is no issue. The return requires the relevant information and the tax calculation software calculates the HICBC and makes it payable.

For those not in self-assessment, relevantly employees earning more than about £60,000 but less than £100,000, the law was changed deliberately to require a person with a liability to the HICBC to notify that liability even if all their income was such that there was no such notification obligation. The avowed purpose, according to HMRC, of notifying liability (or registering for self-assessment as they call it) is so that a return can be required and a self-assessment made to include the HICBC details and with its attendant penalties for non-filing and non-payment applying.

And HMRC didn’t just to have to wait and hope that those liable to HICBC but only in the PAYE system would get round to notifying liability. They had the information that would enable them to target letters to the likely constituency and to issue notices to file. Having done that they had the ability to make a non-appealable determination under s 28C of the likely HICBC. We know they ahd that information becsue they had projects to investigate non-filers (as happened in Robertson v HMRC, my case on the HICBC)

They also amended the PAYE Regulations to ensure that the income tax payable under the HICBC could be coded out (regulation 14B effective from 2012). That could be objected to, but if it was then notices to file and s 28C determinations could follow. The drafters of the PAYE Regulations, ie HMRC Solicitor's Office, would have known then that the HICBC is not income, as had it been they would have been able to rely on regulation 14(1)(f).

So I entirely fail to see why the absence of a power to make a s 29 assessment represents a gaping hole in the law. Nor do I rule out that it was a deliberate decision, given HMRC’s knowledge of the pension charges provisions referred to by Judge Bedenham in Haslam. Goldsmith v HMRC shows that HMRC had, by 2011, given up using the obvious way to tax underpayments not capable of being coded out – s 29 assessments.

In Haslam HMRC also argued:

“A notice to file [under s 8 TMA 1970] will only be effective where it is issued within 4 years of the relevant year of assessment...[However,] HMRC may not become aware until several years down the line [that the taxpayer has failed to notify chargeability to HICBC]. Accordingly, section 8 TMA is not an effective remedy for HMRC in these scenarios.”

Firstly, this alleged fact could not have been in the legislators’ minds in 2011 as it was not introduced until 2017. Secondly, s 34A TMA, which is what is being referred to here, does not prevent a notice to file being issued after the four year point and a section 28C determination then being made in the absence of a return. What s 34A does not allow is the supersession of the determination in those circumstances.

This statement also completely overlooks the fact that, as mentioned above, HMRC have always had the information on a practically real time basis that would enable them to act well within any four year cut off point.

This misuse of the first part of Lord Dunedin’s famous dictum in Whitney is very mild stuff compared to the current misuse of the second part, the famous division into three of the tax imposition process, or “trichotomy” as Lord Justice Moses called it in UBS. The trichotomy was flagrantly misused by HMRC in Hoey v HMRC and Higgs & others v HMRC as a justification for its strange view that regulations 185 and 188 of the PAYE regulations were not justiciable and indeed that the PAYE Regulations were only about collection (despite the two regulations concerned being in a part headed with the word “assessment”).

Hoey & Higgs also illustrate another disturbing trend, which is to misuse obscure legislation, especially so as to penalise any people within the loan charge. In those cases HMRC argued that they had prevented any credit for the employees for tax under regulation 185(5) and 188(4) because they had made a secret retrospective direction that the employers who failed to deduct tax which before Rangers they had no way of knowing about were respectively absolved from doing so. To achieve that they apparently used s 687(4A) ITEPA. Those readers, who no doubt will include Justin, who have access to Westlaw or who subscribe to the British Tax Review will find that there has just been published an article by me on and Hoey and Higgs and section 687(4A). I am currently preparing a paper on the regulation 185/188 aspects.

*This is a new misuse of Nicholson v Morris. Usually it is tagged on by HMRC to Jonas v Bamford to justify the use of a short period of established underreporting of income or outputs or a few days’ sample purchases to make assessments for many years under the guise of the “presumption of continuity”. I exposed this misuse in Choudhry (as representative partner of Continental Food Store) & Ors v Revenue & Customs [2019] UKFTT 38 (TC) at pp 206 to 232.

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Replying to richard thomas:
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By Justin Bryant
24th Aug 2020 16:24

I couldn't agree more (and that's probably the best post so far this year). I would also venture that this is yet another example of poor quality FTT judges* with a tendency to just swallow whatever HMRC tell them per my above comments i.e. the judges (with notable exceptions of course) should be more alive to fact that HMRC employ these tactics and I will have a look at your article.

The alternative way for the taxpayer to win using IOTL as a defence is here: https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07794.html
https://www.accountancydaily.co/taxpayer-wins-appeal-over-high-income-ch...

*It's not just the FTT of course. For example, in justifying their decision in Rangers (the acquiescence argument) the SC seemed to accept (the Court of Session's view) that the EBT would be a post tax family trust, ignoring the plethora of legislation/case law to the contrary whereby EBT/EFRBS payments to employees and their families are subject to tax regardless (the double tax effect is only legislatively relieved). Indeed, this is why EBT/EFRBS payments should not be subject to a s72 IHTA 1984 IHT exit charge (despite Rangers).

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