Ignorance is winning formula in HICBC caseby
Despite the maxim that ignorance of the law is no excuse, this appeal against High Income Child Benefit Charge penalties saw the wife’s lack of awareness of her husband’s income as a reason to cancel penalties.
The past few years have seen the first tier tribunal (FTT) dealing with a glut of appeals against penalties for the High Income Child Benefit Charge (HICBC). In the case of Waseem Shahid (TC08906), the outcome was perhaps not what anyone – especially HMRC – expected.
Shahid was a taxpayer dealt with exclusively under PAYE. He had never received notices to file a self assessment return. His wife claimed child benefit for each of their three children from July 2014, August 2018 and December 2019 respectively.
Theirs, it would appear, was an old-fashioned marriage. Mrs Shahid was a full-time housewife, while Mr Shahid worked offshore. He paid all the utility and other bills, and placed “housekeeping” money into his wife’s bank account, which she used for shopping, cleaning and clothing. They did not have a joint account.
Mrs Shahid was aware of her husband’s base salary, which was £42,000 per annum. She did not know that, in the years under consideration, he had received overtime and bonuses that took his earnings above £50,000. She did not ask and he did not tell.
When completing the child benefit claims, she will have read the sections that clearly stated: “This information only applies if you or your partner have an individual income of more than £50,000 a year.” Knowing her husband’s salary was only £42,000, she would not have imagined that anything was amiss. Mr Shahid had not seen the claim forms.
For the four tax years 2014/15 to 2017/18, Mrs Shahid was receiving child benefit while her spouse’s income exceeded £50,000. Undoubtedly HICBC was due, and on 24 June 2020 HMRC issued assessments to collect the charge. Mr Shahid accepted that he was liable to the HICBC, but objected to the accompanying penalty notices.
HMRC had issued penalty notices in respect of Shahid’s failure to notify his chargeability in accordance with TMA section 7. He should have done so within six months of the end of each relevant tax year, unless he had been issued with a notice under section 8 to file a tax return (which, of course, he had not). The penalties were calculated at 20% of the tax due, on the basis of non-deliberate behaviour and prompted disclosure.
Shahid appealed, claiming he had a reasonable excuse for his failure to make a disclosure.
The upper tribunal (UT), in the case of Perrin (2018 UKUT 156) had set out a procedure for the FTT to follow, with four steps.
- What are the facts that the taxpayer believes give rise to a reasonable excuse? This might include “the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts”.
- Which, if any, of those facts are proven?
- Do those facts, if viewed objectively, actually amount to an objectively reasonable excuse for the taxpayer’s behaviour? The test broadly amounts to “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”
- Once the factors that amounted to a reasonable excuse ceased to be in force, did the taxpayer remedy his failure without unreasonable delay?
Ignorance of the law
The UT went on to point out that the old maxim “ignorance of the law is no excuse” does not automatically invalidate a reasonable excuse claim (much as HMRC would love to believe it does). Much will depend on the specifics of any given case.
Some of the arguments for reasonable excuse in the specific context of HICBC had been reviewed by Judge Amanda Brown KC in the case of Hussain (TC08845).
One amusing element here is that, in her Hussain judgment, Judge Brown was quoting and summarising the conclusions of Judge Nigel Popplewell. By the most delightful of circumstances, the judge in the present case of Mr Shahid was none other than… Judge Popplewell himself, who was able to confirm that she had expressed his views entirely accurately.
Fitting the facts
As always, the difficulty lies in fitting the general principles to the specific facts of the case. Judge Popplewell found the following with regard to Mr Shahid.
- HMRC issued letter SA252 (which warned PAYE taxpayers with high incomes that they would be at risk of HICBC were their spouses to make a child benefit claim) to Mr Shahid’s address, but neither he nor his wife had read it. The judge concluded this based on Shahid’s subsequent prompt actions to rectify the problem. “He appears to be a man who is conscious of the UK tax system and intends to comply with his obligations towards it,” he said. Had he read the letter, he would have responded.
- On receiving the subsequent nudge letter, Shahid contacted HMRC by telephone within six days, and fully accepted the HICBC liability.
- Mrs Shahid earnestly believed that her husband’s earnings were below the threshold. In any case, “she is not in the dock in this appeal. The issue is one for her husband”.
What matters is what Mr Shahid knew and did. What he knew was that his wife was claiming child benefit and that he had income in excess of £50,000. What he did not know was that this implied a charge to HICBC. What he did was to respond to HMRC and seek to rectify the situation as soon as he knew there was an issue, and – as a finding of fact by the judge – did so without unreasonable delay.
The appeal was accepted and the penalties were cancelled.
Lack of awareness
HMRC has, in far too many cases before FTT, proudly brandished its extensive publicity campaign for HICBC and argued that it is unreasonable for any taxpayer to be unaware of its provisions.
The law, however, says something slightly different: one cannot simply “deem” someone to be aware of a tax statute, no matter how broadly and loudly it has been trumpeted.
If a taxpayer can show as a fact that they were unaware of it, and that this lack of awareness was objectively reasonable under the specific circumstances in which they found themselves, ignorance of the law can be a reasonable excuse.