Ian Smicle-Thompson v The Commissioners for HMRC

Mr Smicle-Thompson (MST) seeks permission to appeal out of time against a decision by HMRC to uphold discovery assessments issued under s29 Taxes Management Act 1970 (“TMA) to recover High Income Child Benefit Charge (“HICBC”) in the sum of £2,883 for the years 2015-16, 2016-17 and 2017-18.

HMRC object to the late appeal application.

HMRC also applied to strike out part of the proceedings relating to late payment penalties for the tax year 2020-21, which MST opposed. Shortly before the hearing HMRC confirmed that they were no longer pursuing the strike out application and had cancelled the late payment penalties.

The only matter left to be considered at the hearing was therefore the late appeal application. The parties were informed in advance that regardless of the outcome of the application this would not be a hearing of the substantive appeal.

MST was contacted by HMRC in October and November 2019 advising him to check whether he was liable to pay the HICBC and, if so, to inform HMRC. HMRC warned MST that he could be liable to penalties. He responded by telephone and completed the child benefit tax calculator, and also sought to complete self-assessment tax returns for relevant tax years.

HMRC issued assessments under s29 TMA on 29 January 2020 to recover HICBC for the years 2015-16, 2016-17 and 2017-18.

On 7 and 18 February 2020 MST wrote to HMRC appealing the assessments.

HMRC responded on 2 March 2020 upholding the assessments. In that letter HMRC informed MST that he could ask for a review of the decision by an HMRC officer not previously involved in the matter, or appeal to an independent tribunal, in either case within 30 days of the date of the letter.

MST wrote to HMRC on 5 March 2020 saying that he wanted to start making stage payments, and again on 28 May 2020 stating that he was willing to pay £150 per month to pay off the sum due in respect of the assessments. MST then started to make monthly payments.

MST wrote to HMRC on 24 January 2022 regarding issues with his self-assessment account. In this letter MST made a reference to the Upper Tribunal’s decision in HMRC v Jason Wilkes [2021] UKUT 150 (TCC) (“Wilkes UT”) and requested that the assessments and related charges be cancelled.

HMRC responded on 1 February 2023 asking MST to clarify whether he wished to appeal the assessments or to continue to pay the monthly repayments.

MST wrote on 27 February 2023 citing Wilkes UT and HMRC v Wilkes [2022] EWCA Civ 1612 (“Wilkes CA”) and requested that the assessments be cancelled and payments already made to be repaid.

HMRC responded on 27 March 2023 stating that MST was out of time to make an appeal based on Wilkes and informing him that his only recourse was to make a late appeal to the Tribunal.

There was a further exchange of letters on the same basis on 25 April 2023 and 25 May 2023.

On 23 June 2023 MST’s MP wrote to HMRC, attaching a letter from MST dated 18 June 2023. HMRC responded on 20 July 2023 advising MST that he could make a late request for an independent HMRC review, or a late appeal to the Tribunal.

MST submitted an appeal to the Tribunal against the assessments on 14 December 2023, requesting permission to make a late appeal.

The Tribunal may give permission for a late appeal where HMRC have objected.

In considering this late appeal we follow the three-stage approach set out in Denton and Ors v TH White Limited and Ors [2014] EWCA Civ 906 as confirmed by the Upper Tribunal in WilliamMartland v HM Revenue & Customs [2018] UKUT 178 (TCC) (“Martland”).

Paragraph 44 of that decision reads as follows:

“44.

When the [First-tier Tribunal] FTT is considering an application for permission to appeal out of time, therefore, it must be remembered that the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be. In considering that question, we consider the FTT can usefully follow the three-stage process set out in Denton:

(1)

Establish the length of the delay. If it was very short (which would, in the absence of unusual circumstances, equate to the breach being "neither serious nor significant"), then the FTT "is unlikely to need to spend much time on the second and third stages" - though this should not be taken to mean that applications can be granted for very short delays without even moving on to a consideration of those stages.

(2)

The reason (or reasons) why the default occurred should be established.

(3)

The FTT can then move onto its evaluation of "all the circumstances of the case". This will involve a balancing exercise which will essentially assess the merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission.”

In paragraphs 45 and 46 the Upper Tribunal goes on to provide guidance on how the evaluation of “all the circumstances of the case” should be carried out by the Tribunal:

“45.

That balancing exercise should take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected. …The FTT's role is to exercise judicial discretion taking account of all relevant factors, not to follow a checklist.

46.

In doing so, the FTT can have regard to any obvious strength or weakness of the applicant's case; this goes to the question of prejudice - there is obviously much greater prejudice for an applicant to lose the opportunity of putting forward a really strong case than a very weak one. It is important however that this should not descend into a detailed analysis of the underlying merits of the appeal.”

The burden lies with the Applicant to persuade the Tribunal to override the statutory time limit.

Until the Finance Act 2022 (“FA 2022”) came into force on 24 February 2022, s29(1)(a) TMA provided, as far as relevant to this appeal, that:

“29(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—

(a)

that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, ..

…

the officer or, as the case may be, the Board may, subject to sub-ss (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”

Subsections (2) and (3) of s29 TMA only apply where the taxpayer has made and delivered a return.

In relation to assessments under s29 TMA to collect the HICBC, a series of decisions relating to an appeal brought by Mr Jason Wilkes (by the FTT in Jason Wilkes v HMRC [2020] UKFTT 256 (TC) (“Wilkes FTT”), upheld by the Upper Tribunal in Wilkes UT and confirmed by the Court of Appeal in Wilkes CA) held that the HICBC was “neither ‘income’ nor even charged on income” nor was it “income which ought to have been assessed to income tax” or an “amount which ought to have been assessed to income tax” (see Wilkes CA at [29]). The HICBC is instead a free-standing charge to tax. Accordingly, the HICBC could not be assessed under s29(1)(a) TMA.

Section 29(1)(a) TMA was amended by s97 FA 2022 to read “that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed”. The change in wording introduced by s97 FA 2022 reversed the position following the decisions in Wilkes and allowed HMRC to make discovery assessments, subject to the usual conditions, in relation to the HICBC and some other things.

The new wording had retrospective effect but that was subject to an exception for discovery assessments in respect of the HICBC in relation to which notice of appeal had been given to HMRC on or before 30 June 2021 which met certain conditions. The relevant provisions in s97 are as follows:

“(3)

The amendments made by this section—

(a)

have effect in relation to the tax year 2021-22 and subsequent tax years, and

(b)

also have effect in relation to the tax year 2020-21 and earlier tax years but only if the discovery assessment is a relevant protected assessment (see subsections (4) to (6)).

(4)

A discovery assessment is a relevant protected assessment if it is in respect of an amount of tax chargeable under—

(a)

Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit charge),

…

(5)

But a discovery assessment is not a relevant protected assessment if it is subject to an appeal notice of which was given to HMRC on or before 30 June 2021 where—

(a)

an issue in the appeal is that the assessment is invalid as a result of its not relating to the discovery of income which ought to have been assessed to income tax but which had not been so assessed, and

(b)

the issue was raised on or before 30 June 2021 (whether by the appellant or in a decision given by the tribunal).”

In summary, the retrospective changes made by s97 FA 2022 do not apply to an assessment in respect of which an appeal was made on or before 30 June 2021 which concerned the issue identified in the decisions in Wilkes, and the issue was raised by a party or the tribunal before that date.

At the time MST received the letters from HMRC regarding a possible liability to HICBC, he and his family were fully occupied with a Special Educational Needs & Disability (SEND) Tribunal. In addition, they had to pay for professional reports for that tribunal and for some specialist SEND provision and were therefore very concerned at the prospect of receiving penalties for non-compliance or late filing.

MST therefore did his best to provide the information required and complete required tax returns as quickly as he could, although he found the information and requirements puzzling and confusing, and struggled to obtain information or support from HMRC.

In his appeal of the assessments in February 2020, MST highlighted the family’s personal and financial challenges, including the fact that he is the sole earner, requesting that his HICBC status be reviewed, that interest and penalties be halted and removed, and that if it was considered that he is still liable he should be given time to agree a reasonable monthly payment.

Around the time that he received the letter from HMRC upholding the assessments, MST and his wife had recently completed the SEND tribunal appeal and were chasing their Local Authority for an overdue Education Health Care plan for their son, who has complex learning needs. In addition, the Covid national lockdown was implemented, and Mrs Smicle-Thompson was home-schooling two of their children as well as arranging specialist tutor support for their son. MST was not furloughed and continued to work during this period. They were supporting a close family member who was terminally ill and died in May 2020. MST was also concerned about his job and was subsequently made redundant in August 2020.

These were exceptional circumstances and MST and his wife therefore did not have the capacity to appeal HMRC’s decision. They were very concerned about penalties for non-compliance, and agreed a payment plan, commencing monthly payments from May 2020.

MST initially had problems formalising the Time to Pay arrangement with HMRC and did not do so until September 2020. Over the next few years he repeatedly received late filing and late payment penalties which were then cancelled after he complained to HMRC that he had a TTP in place and that he had confirmation that relevant returns had been filed. He also had difficulty accessing his SA account. Throughout MST found it very difficult to contact HMRC by telephone to resolve issues. The debt was passed to a Debt Collection Agency without his being notified. At times MST had to engage the help of his local MP. He made a number of formal complaints to HMRC and received apologies and small payments for the upset caused. He made a complaint to the Adjudicator about the way HMRC dealt with his SA tax affairs and HICBC which was partially upheld. MST was finding and then dealing with the challenges of a new job and the family were also dealing with a further SEND tribunal appeal between November 2021 and January 2023.

During this period, in January 2021, MST spoke to HMRC and received a self-assessment statement which appeared to suggest that the balance he owed was settled in full in September 2020. He wrote to HMRC twice in February and April asking for an urgent review of his account and for repayment of payments he had been making since then and did not receive a response. In May MST formally complained again to HMRC and stopped making monthly payments.

MST finally received a reply from HMRC saying that there was a signal on his account and they could not repay any overpayment; in November 2021 HMRC informed him by letter that there had been a fraudulent attempt to take control of his self-assessment (SA) record. The old record was closed and he was issued with a new Unique Taxpayer Reference (UTR) and a new SA record.

As a result of the constant issues with his SA account, MST’s focus was on trying to comply with HMRC’s requests and to ensure he did not suffer incorrect penalties in order to minimise the HICBC debt, rather than making an appeal to this Tribunal.

MST became aware that the Upper Tribunal had made a ruling in July 2021 (in Wilkes UT) regarding the validity of discovery assessments raised regarding HICBC liabilities in circumstances similar to his own and requested in a letter of January 2022 that this decision be followed, his liabilities cancelled and payments refunded. He wrote again in March and August of that year.

HMRC did not reply to his letter of January 2022 until February 2023, over a year later, by which time MST had started to make monthly payments again. HMRC asked for confirmation as to whether MST wanted his letter to be treated as an appeal. He confirmed this in a letter on 27 February 2023, in which he stated that the initial assessments issued under s29 TMA to recover HICBC for the years 2015-16, 2016-17 and 2017-18 should not be treated as ‘relevant protected assessments’ under s97 Finance Act 2022, and accordingly he should benefit from the Wilkes decision and the assessments should be treated as invalid. He believed that HMRC should have treated this as a valid renewed appeal, but instead they responded that he had already appealed in 2020 and that they treated the matter as settled, because he hadn’t requested an independent HMRC review or appealed to this Tribunal at that time.

MST believes HMRC were in error in suggesting that he could not benefit from Wilkes because of the retrospective legislation in s97 Finance Act 2022. He persisted in his attempt to obtain a fresh appeal to HMRC on this basis in his subsequent letters as he believed this was the only route open to him because any appeal to the Tribunal would be very late. He thought if HMRC accepted a renewed appeal he could then appeal their decision to the Tribunal within the 30 day time limit. During this time MST received several letters out of the blue from two different debt collectors regarding his outstanding liability. He once again enlisted the help of his MP, who received a response from HMRC on 15 November 2023 about this which also made it clear MST’s only recourse was an appeal to this Tribunal.

Following a discussion with his MP, MST made his appeal to this Tribunal on 14 December 2023.

MST states that he did not deliberately delay his appeal to the Tribunal and that any appeal would be on the basis on Wilkes. He contends that because he appealed the assessments before 30 June 2021 they are not ‘relevant protected assessments’ to which the retrospective legislation in s97 applies and therefore that the assessments are invalid. He considers that if this is not the case, this is very unfair and that he is being penalised by HMRC for failing to word his appeals in a particular way which he was not aware of at the time. He was not informed at the time that the assessments had been raised as discovery assessments under s29 TMA.

The family felt coerced into complying with the original notices regarding a possible liability to HICBC because of the threat of penalties, and believe that HMRC made a mistake with the assessments and then used their power to get around it. He considers that HMRC misrepresented the legal position regarding the assessments and that he could only base his original appeal on the information he had at the time. In his letter of appeal of 7 February 2020 he requested that the policy should be applied “justly and flexibly”. He believes the retrospectivity of the HICBC and the imposition of interest is burdensome and oppressive, and that the 30 day deadline for appeal and the retrospective legislation in s97 are fundamentally unfair.

MST believes that for all these reasons he should be permitted to make a late appeal to the Tribunal.

HMRC object to the application, based on the three-stage process in Martland.

The length of the delay

The reasons (or reasons) why the default occurred

Evaluation of all the circumstances of the case

We had a hearing bundle of 371 pages prepared by HMRC, a bundle of documents from MST of 135 pages with a list of documents and HMRC’s notice of objection to the late appeal of 15 pages. We received a further 12 documents by email after the hearing from MST, with the consent of HMRC.

We heard from Mrs Smicle-Thompson on behalf of MST at the hearing, as well as both Miss Preetika Sharma and Mr Collin Williams for HMRC.

HMRC do not dispute the chronology of correspondence set out by MST, which is supported by documents in the bundles, by his response to HMRC’s objection to the late appeal and by evidence presented by Mrs Smicle-Thompson at the hearing. We find that this chronology is accurate.

HMRC do not dispute the circumstances of the family between 2019 and 2023. MST has been consistent in his accounts in correspondence, in his response to HMRC’s objection and in the evidence given on his behalf by Mrs Smicle-Thompson at the hearing. We find these accounts to be accurate.

HMRC submit that MST accepted the assessments following his unsuccessful appeal to them in February 2020. This is confirmed in his response to HMRC’s objection, and so we find. Mrs Smicle-Thompson stated at the hearing that had it not been for the decisions against HMRC in Wilkes, they would not have sought to make an appeal, and we make this finding too.

Mrs Smicle-Thompson spoke eloquently at the hearing about the impact dealing with HMRC as a result of this matter has had on their family since 2019, during which time they have faced other significant financial and emotional challenges that have required their time and energy. We are very sympathetic to the many difficulties they have encountered because of continual errors from the outset by HMRC in managing MST’s SA account. Although it is unfortunate that there was a fraudulent attempt to take this account over, which is not HMRC’s fault, HMRC dealt with the impact of it poorly.

We are also very sympathetic to the difficulties MST has encountered in trying either to communicate with HMRC or to obtain information, including the true extent of his outstanding liabilities following the incorrect SA statement of account issued in January 2021.

HMRC were unable to provide this information at the hearing and we issued directions for a full breakdown of MST’s HICBC liabilities for the tax years 2015-16 to 2018-19 (inclusive), together with the amounts paid by MST against each liability. We were informed that the outstanding balance due in respect of the 2017-18 revenue assessment is £546.40. We were however very disappointed indeed that HMRC made no attempt to provide this information in respect of the 2015-6 and 2016-17 revenue assessments, on the basis that these were issued under MST’s previous SA account which can only be accessed by a specialist team.

We consider that MST should have been provided with clear and comprehensive information as to the true extent of his outstanding liabilities when his previous SA account was closed and new SA account set up, as well as regular updates. This information should also have been available to this Tribunal and provided in accordance with our directions. Sadly, it appears that HMRC have made no attempt to provide such information to MST through the preceding process nor fully to this Tribunal following our directions. We trust that HMRC will provide the appropriate information to MST, without undue delay, following the issue of this decision.

We note that MST has tried to comply with his tax obligations to the best of his ability, notwithstanding the lack of this information, the many errors by HMRC in management of his account and the fraudulent attempt to take it over. We are not however tasked with considering these issues, and we note that MST has complained on several occasions to HMRC as well as to the Adjudicator, mostly successfully.

The only question before us is whether we should exercise our discretion to allow MST to make a late appeal to this Tribunal against a decision by HMRC to uphold discovery assessments issued under s29 TMA to recover HICBC for the years 2015-16, 2016-17 and 2017-18. In considering this we should follow the three-stage process in Martland, set out above.

MST appealed against the assessments in February 2020 and was issued with a letter from HMRC upholding their decision on 2 March 2020. Any appeal to this Tribunal would therefore have to have been submitted by 1 April 2020. The appeal was submitted on 14 December 2023.

The delay at over 3 years and 8 months is therefore clearly serious and significant.

We are sympathetic to the considerable challenges faced by MST and his family at the time of the decision letter from HMRC, and to the challenges they continued to face over the following years in relation to MST’s SA account and other matters.

We consider however that they do not amount to a reasonable excuse for his delay in appealing to this Tribunal throughout the period of delay. If MST had made an appeal as soon as the family’s challenges in the first half of 2020 had eased we may have taken a different view. We note that even after HMRC had told MST very clearly in their letter of 27 March 2023 that his only recourse was a late appeal to this Tribunal, it took him until 14 December that year to notify that appeal.

It is clear from MST’s evidence however that he had no intention of appealing the decision by HMRC to uphold the assessments until he became aware of the decision in Wilkes UT. We do not consider this to be a reasonable excuse for the delay.

We are mindful of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected.

We note that, notwithstanding the many errors made in relation to MST’s SA account, HMRC have been entitled to treat the matter the subject of the proposed appeal as settled since mid-2020. Although HMRC have included much of its defence of the substantive appeal in its notice of objection to the late appeal application, if we were to grant the late appeal it would require HMRC to prepare a full statement of case, a further bundle of documents and to attend another hearing. We are satisfied that HMRC and other taxpayers would suffer prejudice as a result.

We are however mindful of the fact that if we refuse this application there is prejudice to MST as he will not have his substantive appeal fully considered by and adjudicated on by an independent Tribunal.

We have briefly considered the merits of the substantive appeal. Mrs Smicle-Thompson made it clear at the hearing that the ground for appeal would be that the assessments were invalid following Wilkes, and that the retrospective legislation in s97 FA 2022 does not apply because MST’s appeal was made before 30 June 2021.

For this argument to succeed, MST would need to satisfy the Tribunal not only that his appeal was made before 30 June 2021, which is the case, but also that in accordance with s97(5)(a) FA 2022 an issue in his appeal was that the assessments are invalid because the HICBC is not income which ought to have been assessed to income tax and so could not be the subject of a discovery assessment under s 29(1)(a) TMA as then worded, and also that in accordance with s97(5)(b) this issue was raised before 30 June 2021.

We do not consider that there is anything in MST’s letters of appeal of February 2020 that can be construed as saying that the discovery assessments related to the HICBC which was not income which ought to have been assessed to income tax. The first mention made by MST of Wilkes and the validity of the assessments was in his letter of January 2022.

At the hearing Mrs Smicle-Thompson referred us to the cases of James Fera v HMRC [2023] UKFTT 961 (TC) and TJ Stout v HMRC [2024] UKFTT 906 (TC), which found that any appeal against an HICBC assessment, other than one that focuses on quantum only, would satisfy the requirements of s97(5)(a) and (b) FA 2022.

We have considered these decisions, and also the decisions in Hextall, Niewiarowski, Wills and Jonathon Woods v HMRC (TC/2022/13433), all of which found that although the appeal does not need specifically to refer to Wilkes or the wording of s97(5)(a) and (b) FA 2022, the reference must make it clear that the point to be considered is the same as that raised in Wilkes, however generally put. We agree with the reasoning in these cases, and in particular with the comments of Judge Zaman in Wills who said at [37]:

“… I conclude that s97(5)(b) must be interpreted in a manner which does not result in this sub-paragraph being redundant, such that it must mean something more than that required by s97(5)(a), and that the express reference in s97(5)(b) to the issue being raised either by the appellant or the tribunal means that there should be some express reference which can be identified as a challenge based on the Wilkes issue, even if that challenge is imprecise…”.

We therefore believe that MST has very weak grounds for appeal.

We have balanced the factors relevant to the exercise of our discretion, including the fact that the delay is serious and significant, that the reason for the delay (that MST decided to appeal HMRC’s decision only after he became aware of the decision in Wilkes UT) has little merit, the very weak grounds for appeal and the prejudice which will be caused to HMRC by granting permission. Weighing these factors against the prejudice to MST by not having his substantive appeal fully considered, we are satisfied that MST should not be allowed to make his appeal late to the Tribunal. In this decision we are exercising our discretion in accordance with the Tribunal’s overriding objective to deal with cases fairly and justly.

We therefore find that an out of time appeal should not be permitted and MST’s application is refused.

Following the release of the decision, we were provided with correspondence from MST which was dated shortly before the decision was released. We have reviewed that correspondence and concluded that it does not affect our decision because it contains no new information relevant to the question as to whether an out of time appeal should be permitted.

In that correspondence MST states that his appeal is also in respect of the tax year 2018-19, however we have not been provided with any information or evidence that there is an appealable decision by HMRC in respect of that year. MST’s letters of February 2020 appealed the assessments raised by HMRC in respect of the tax years 2015-16, 2016-17 and 2017-18 and requested assistance to complete a self-assessment tax return for 2018-19. That tax return was subsequently completed and a self-assessment tax calculation notified to MST; no assessment appears to have been issued by HMRC in respect of 2018-19.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.