Gentiana Zafi v The Commissioners for HMRC

The form of the hearing was V (video). All attendees attended remotely on the Teams platform. The documents to which we were referred are a Hearing Bundle of 242 pages and a High Income Child Benefit Charge (HICBC) Generic Bundle of 878 pages. At the end of the hearing we gave Directions for written submissions from HMRC on who was an “officer of the board” and what constitutes “notice” for the purposes of section 7 Taxes Management Act 1970 (TMA). We have considered HMRC’s further submissions dated 31 July 2025 (the Further Submissions) and the Appellant’s additional comments.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

This is Ms Zefi’s appeal against assessments to the HICBC and penalties imposed under schedule 41 Finance Act 2008 for failure to notify her liability to tax under section 7 TMA.

Ms Zefi had applied to postpone the hearing on 3 July 2025 on the grounds that she had to look after her mother who was ill. She did not provide any evidence. The application was refused, but Ms Zefi renewed the application, by email, on the day before the hearing explaining that her mother lived in a different country and providing a copy of her flight details for the following day (the day of the hearing).

HMRC objected to the postponement. The case had been postponed on a previous occasion without evidence. The initial application, on this occasion, had been made a week before the hearing, yet the Appellant had remained in the UK and was proposing to fly out on the day of the hearing. There were up to seven flights a day to the Appellant’s destination and she could have gone after the hearing (which was listed for the morning only) or the next day, given that she had already waited a week and had provided no details of her mother’s illness. HMRC’s officers who were witnesses had made themselves available and it would be unreasonable to postpone the hearing.

Having considered the Appellant’s application and HMRC’s objections, we considered that it was in the interests of justice to proceed with the hearing in accordance with Rule 33 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.

In Ms Zefi’s response to the Further Submissions, she objected to the fact that we had proceeded with the hearing in her absence. We have set out above our reasons and the authority for doing so. If Ms Zefi wishes to pursue her objection she can do so as part of her appeal rights set out at the end of this decision.

HMRC made discovery assessments under section 29 TMA in relation to the HICBC totalling £2,625.00 for the three tax years 2016/17 to 2018/19 inclusive.

HMRC also charged penalties amounting to £525.00 under schedule 41 Finance Act 2008 for the same tax years as a result of the Appellant’s failure to notify her liability to the HICBC under section 7 TMA.

The liability to tax and the penalties were notified to the Appellant on 26 January 2023. The penalties were varied on review (reducing them) and the review conclusion letter was issued on 31 July 2023.

Ms Zefi appeals against the assessments, penalties and interest. The Tribunal has no jurisdiction in relation to interest and we do not consider it further.

The HICBC was introduced by Finance Act 2012 and had effect from 7 January 2013.

Essentially, the HICBC clawed back Child Benefit paid to high earners, if they continued to claim Child Benefit. The HICBC is an income tax charge on individuals who, or whose partners, receive Child Benefit where the Adjusted Net Income (ANI) of the claimant or their partner exceeds £50,000 in a tax year.

An income tax charge of 1% of the Child Benefit received by the household arises for every £100 by which the ANI of the person liable to the HICBC exceeded £50,000. Consequently, where that person’s ANI reached £60,000 in a tax year, the HICBC amounts to 100% of the Child Benefit received in their household. Where the ANI of the liable person is between £50,000 and £60,000, they will still receive some Child Benefit, so they may want to continue to claim. The claim may be cancelled at any time.

A person who is liable for the HICBC and who has not received a notice to file a self-assessment tax return under section 8 TMA must notify HMRC of their chargeability to income tax under section 7 TMA.

Section 7 TMA provides, so far as material:

“7(1) Every person who

(a)

is chargeable to income tax or capital gains tax for any year of assessment, and

(b)

falls within subsection (1A) or (1B), shall, subject to subsection (3) below, within the notification period, give notice to an officer of the Board that he is so chargeable.

7(1A) A person falls within this subsection if the person has not received a notice under section 8 requiring a return for the year of assessment of the person's total income and chargeable gains. …

7(1C) In subsection (1) “the notification period” means

(a)in the case of a person who falls within subsection (1A), the period of 6 months from the end of the year of assessment, …

7(3) A person shall not be required to give notice under subsection (1) above in respect of a year of assessment if for that year

(a)the person's total income consists of income from sources falling within subsections (4) to (7) below,

(b)the person has no chargeable gains, and

(c)the person is not liable to a high income child benefit charge.”

By virtue of section 7(5) TMA a person whose income falls under PAYE does not normally have to notify liability under section 7, but this does not apply if the individual is liable for the HICBC by virtue of section 7(3)(c).

As the assessments were Discovery Assessments, they must comply with the provisions of section 29 TMA. Section 29 currently provides, so far as material:

“29 Assessment where loss of tax discovered.

Further conditions apply where the taxpayer has submitted a tax return, but they do not apply in the present case as Ms Zefi did not submit a return.

Section 29 TMA previously provided that an officer could make a discovery assessment where income or capital gains had not been assessed to tax. The Court of Appeal in the case of The Commissioners for HMRC v Jason Wilkes [2022] EWCA Civ 1612 (Wilkes) decided that under the previous version of section 29 HMRC could not make discovery assessments in relation to the HICBC as it is a free-standing charge to income tax and not an amount of income on which tax had not been charged. While Wilkes was progressing through the courts many HICBC cases which relied on discovery assessments, including Ms Zefi’s, were put on hold, pending the outcome of the appeal.

Following the Court of Appeal decision in Wilkes, section 29 TMA was amended by section 97 Finance Act 2022 to its present form which allows discovery assessments to be made where an amount of income tax (as opposed to an amount of income) has not been assessed. The 2022 changes were retrospective as well as prospective, provided the discovery assessment was a “relevant protected assessment”. In the context of the HICBC, an assessment would be a relevant protected assessment unless it was subject to an appeal notice which was given to HMRC on or before 30 June 2021 and satisfied certain other conditions; broadly that the appeal raised the issue in Wilkes, or had been paused pending the outcome of Wilkes.

In the present case, the assessments were made and appealed in 2023, that is, long after the cutoff date of 30 June 2021 and so Wilkes can have no application. The assessments are protected assessments and the current version of section 29 TMA applies.

Under section 36(1A)(b) TMA an assessment involving a loss of income tax attributable to a failure of a person to notify liability under section 7 TMA may be made up to 20 years after the end of the tax year in question.

Schedule 41 of the Finance Act 2008 (schedule 41) provides for penalties where a person has failed to notify liability under section 7 TMA.

The maximum penalty for a non-deliberate failure is 30% of the Potential Lost Revenue-broadly- the amount of income tax which should have been charged. HMRC may reduce the penalty, to a minimum of 20% in the case of a “prompted” disclosure to reflect the degree of co-operation with HMRC. Reductions are made for “telling” HMRC about the failure, “giving” help to quantify the tax and “allowing access” to records to check how much tax is unpaid.

Ms Zefi is an employee and had always been taxed under PAYE. She had never been required to submit a tax return.

She began claiming Child Benefit from 17 August 2015, after the introduction of the HICBC. The claim form which applied at the time contained prominent information about the HICBC and emphasised that it applied if the claimant or their partner earned over £50.000. Ms Zefi’s ANI was below £50,000 at this point.

On 15 February 2018 Ms Zefi telephoned the Child Benefit Office. The Hearing Bundle contained a full transcript of the conversation, and we summarise the salient points below:

We find that, as a result of this conversation:

Ms Zefi did not submit a tax return.

HMRC issued a “nudge” letter to her on 15 November 2019 advising her to check whether she was liable for the HICBC. A further nudge letter was sent on 16 December 2019.

Ms Zefi took no action.

Officer Matthew Savory “discovered” the loss of tax on 10 May 2021. He was working on a project to identify taxpayers who were liable to the HICBC but had not notified HMRC of their liability and had not registered to receive self-assessment tax returns. HMRC’s internal Risk Intelligence Service had provided a dataset identifying Child Benefit claimants who were earning over £50,000 and who had not responded to the 2019 nudge letters. Officer Savory’s role was to establish if the claimant had failed to notify their liability. He did this by cross-referencing income details obtained from PAYE records with Child Benefit Office records and checking whether the high earner had registered for self-assessment.

On 10 May 2021, he carried out a compliance check on the Appellant. Using the various data available to him, he established that Ms Zefi’s income in the tax years ended 5 April 2016, 2017, 2018 and 2019 was respectively £46,685, £54,409, £62,269 and £67.640. Also, that her income was higher than her partner’s income, that her ANI was over the threshold, that she had been claiming Child Benefit, and that she had not registered for self-assessment or notified her liability.

He concluded that the Appellant was liable for the HICBC in the tax years 2016/17 (£473), 2017/18 (the full amount of the Child Benefit which was £1,076) and 2018/19 (£1,076) and there had, accordingly, been a loss of tax in those years totalling £2,625.

On 11 May 2021, Officer Savory wrote to Ms Zefi indicating that she was liable for the HICBC, setting out the amount of tax due for each of the relevant years and explaining that interest and penalties might also be due.

In response to this letter, Ms Zefi telephoned HMRC and told them that she had contacted the Child Benefit Office when her income went above the £50,000 limit. We assume this was a reference to the February 2018 telephone call. She stated that she had been told to register for self-assessment and complete tax returns. She was, however, confused as to why HMRC had not cancelled the claim and was told the fact she was liable for the HICBC did not affect her eligibility for Child Benefit.

Ms Zefi cancelled her claim for Child Benefit on 1 June 2021.

On 18 June 2021 HMRC wrote to the Appellant saying they had decided she was liable for the HICBC and that they were going to issue assessments.

On 15 July 2021 the Appellant telephoned HMRC asking about the next steps. She was informed that cases were paused and that they would be in touch “soon”. We infer that the pause was the result of the Wilkes case and that HMRC were awaiting the final outcome before proceeding with the assessments.

There was no further contact until 9 January 2023 when HMRC wrote to Ms Zefi explaining that they had not written to her because they were considering whether she was affected by the Wilkes case which was under appeal. They also informed her that the amendments to the legislation (section 29 TMA) meant that they could now deal with her case. On the same day, HMRC issued letters stating that they would be issuing assessments for the HICBC and penalty assessments on the basis that disclosure was prompted but non-deliberate. The penalty rate to be charged was 27% in each year.

On 26 January 2023, Ms Zefi telephoned HMRC and was recorded as being upset and confused about the charges. The adviser explained how the HICBC was calculated, that she was liable for it and also explained the penalties and interest. The adviser further explained that as assessments had been raised, she would have to appeal the HICBC and penalty charges if she disagreed. Further information was given about appeal process and what needed to be done.

Assessments to the HICBC and failure to notify penalties were issued on 26 January 2023.

Ms Zefi appealed the assessments to HMRC. HMRC issued their view of the matter letter upholding the HICBC and penalties on 21 March 2023.

Ms Zefi made a late request for a review which was accepted by HMRC. HMRC issued their review conclusion letter on 31 July 2023 upholding the HICBC assessments but reducing the penalty assessments. The penalty percentage was reduced to the minimum 20% for each year so that the total penalties were reduced to £525. The revised penalty assessments were issued on 15 September 2023.

The Appellant appealed to the Tribunal on 8 September 2023 which is outside the 30 day time limit. HMRC do not object to the late appeal and, to the extent necessary, we give permission to appeal out of time.

The issues for us to determine are whether:

The burden of proof is on HMRC to show that it is more likely than not that it has discovered a loss of tax and that the penalties have been correctly charged.

It is clear that the Appellant is, in principle, liable for the HICBC. Her ANI for the relevant years was above the £50,000 threshold. She is the higher earner in the household. She had not declared her liability to the HICBC in a tax return. Having carried out the checks described above, Officer Savory was able to determine that the HICBC was due and had therefore discovered that there was an amount of income tax which ought to have been assessed in the relevant years that had not been assessed.

We find that the Officer made a valid discovery of a loss of tax.

In her grounds of appeal, Ms Zefi says she was not informed about the possibility of appealing the assessment in 2021 and that she was told, when she contacted HMRC that all cases were on hold. She believed that the matter was closed given the fact that she heard nothing between May 2021 and January 2023. She also believed that she was being treated less favourably than those who had appealed at the time (in 2021) as they were not being pursued under the discovery assessment procedure because of Wilkes.

Ms Zefi could not have appealed in 2021 because she had not been issued with assessments at that time. The delay in making the assessments arose because HMRC was awaiting the outcome of Wilkes. It was only those who had already been assessed and who appealed by the June 2021 deadline who could take advantage of the original wording of section 29 TMA which meant that HMRC was unable to issued discovery assessments to them.

As assessments were not issued to the Appellant until January 2023, Wilkes has no application to her case and the retrospectively amended section 29 applies. Accordingly, HMRC are entitled to assess her under the discovery assessment provisions, subject to the time limit issue discussed below.

HMRC also assessed Ms Zefi, under schedule 41, for penalties for failure to notify her liability to HICBC under section 7 TMA. The penalties were assessed on the basis that Ms Zefi’s behaviour was non-deliberate but prompted. The penalties were calculated at 27% of the Potential Lost Revenue but reduced to the minimum 20% on review. The amounts of the penalties finally charged were £94.60 for 2016/17, £215.20 for 2017/18 and £215.20 for 2018/19.

HMRC issued a penalty notice for 2016/17 under schedule 41 in respect of the Appellant’s failure to notify her liability to the HICBC under section 7 TMA. As discussed above, the penalty was calculated on the basis that disclosure was prompted, the behaviour was non-deliberate and the minimum penalty percentage was charged.

Paragraph 20 of schedule 41provides that no penalty is due if the taxpayer has a “reasonable excuse” for their failure to notify.

There is extensive case law on what constitutes a reasonable excuse. The Upper Tribunal in Christine Perrin v HMRC [2018] UKUT 0156 (TCC) set out guidance on the approach we should adopt. The Tribunal said at [81]:

“81.

When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way:

(1)

First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may 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).

(2)

Second, decide which of those facts are proven.

(3)

Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”

(4)

Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.

Although Ms Zefi did not specifically claim to have a reasonable excuse, we have considered her grounds of appeal to see if they disclose a reasonable excuse.

She states that the Child Benefit framework is very complex, confusing and misleading, with no actions from HMRC to clarify to citizens that money received must be returned once the threshold is reached.

Although there is a degree of complexity, Ms Zefi has received explanations on multiple occasions of how the system works, how and when the charge arises and has been told that she must submit tax returns to pay the charge. This information was set out in the Child Benefit Claim Form itself.

It was carefully explained in the telephone call of 18 February 2018 when Ms Zefi decided to continue to claim and was informed she must complete tax returns.

She was again advised to check her liability for HICBC in the two nudge letters sent in December 2019 but did not respond.

Following the opening letter of 11 May 2021, she contacted HMRC and referred to her contact with the Child Benefit Office when her income went above £50,000 and said that they (the Child Benefit Office) had told her to register for self-assessment and file tax returns.

Despite this, Ms Zefi submits she was never notified that she should complete a tax return in the relevant years.

There is ample case law which indicates the obligation to notify liability rests on the individual and HMRC is not required to send a notice to file. In any event, as set out above, Ms Zefi had been told on several occasions that she needed to submit tax returns.

Ms Zefi says she was told to do nothing for 18 months. She was indeed informed that all HICBC cases were on hold, but this was only after the opening letter in May 2021. This cannot be an excuse for her failure to notify her liability before that date.

In summary, the Appellant’s Notice of Appeal does not contain any information which could be considered a reasonable excuse for her failure to notify her liability to the HICBC.

Nor do we have any grounds for interfering with HMRC’s decision that there are no special circumstances which would justify a further reduction in the penalty.

Subject to our consideration of the time limit issue below, the penalty for 2016/17 is due.

HMRC raised the penalty assessments because the Appellant had failed to notify her liability to the HICBC. In the Statement of Case, HMRC had asserted that the telephone call to the Child Benefit Office on 18 February 2018 could not have constituted notification. We asked for submissions as to why this was the case and this was the subject of the Further Submissions.

The first question is, who is an officer of the board.

The Child Benefit Office (CBO) is a department of HMRC.

Section 118 TMA 1970 defines “the Board” as “the Commissioners of Inland Revenue”.

Section 1 of Commissioners for Revenue and Customs Act 2005 (“CRCA”) allows for the appointment of Commissioners for HMRC.

Section 2 of CRCA 2005 sets out the meaning of an “Officer of Revenue and Customs” as follows:

“2 Officers of Revenue and Customs

(1)

The Commissioners may appoint staff, to be known as officers of Revenue and Customs.

(2)

A person shall hold and vacate office as an officer of Revenue and Customs in accordance with the terms of his appointment (which may include provision for dismissal).

(3)

An officer of Revenue and Customs shall comply with directions of the Commissioners (whether he is exercising a function conferred on officers of Revenue and Customs or exercising a function on behalf of the Commissioners)”.

Section 7 of CRCA, and the accompanying schedule, make it clear that Officers of HMRC have responsibility for matters which include Child Benefit.

In the Further Submissions, HMRC concede that staff of the CBO, meeting the relevant conditions in CRCA, may be considered Officers of the Board.

Miss Halfpenny observes that staff in the CBO deal only with child benefit and do not have responsibility for income tax or capital gains tax. Similarly, an officer in an income tax department would not have responsibility for administering child benefit.

At the hearing, Miss Halfpenny submitted that notification to the CBO was not notification to HMRC and referred to the case of Daniel Simmonite v HMRC [2023] UKFTT 00721 (TC) which also concerned a failure to notify liability to HICBC. The Tribunal said at [45]:

“45.

Whilst we can understand why Mr and Mrs Simmonite might have a genuine belief that notification to HMRC's Child Benefit Office satisfied any obligation they might have to notify HMRC, we find that – as a matter of strict law – it did not. The notification made on the phone by Mrs Simmonite to the Child Benefit Office was to stop payment of child benefit. We find that Mrs Simmonite told the officer to whom she spoke that she stopped her claim because of a liability to HICBC. However, we find that notification to the Child Benefit Office cannot be treated as notification to HMRC for the purposes of s7 TMA . HMRC undertakes a wide range of functions, some of which do not relate to the assessment and collection of tax (such as the administration of child benefit, SMP and SSP, and childcare payments). Given this wide range of functions, we find that notification under s7 can only be treated as effective if made to the correct department within HMRC.”

With respect, we do not agree. Section 7 provides:

“7(1) Every person who

(a)

is chargeable to income tax … for any year of assessment, …

(b)

… shall … give notice to an officer of the Board that he is so chargeable”

There is no requirement that notification must be given to a specific officer or an officer in a specific or relevant department. The requirement is simply to give notice to an officer of the board.

While the data recorded in one department may not automatically be shared with other departments, data can be and is shared where it is relevant. As set out at [33] onwards above, Officer Savory was able to make his “discovery” by cross-referencing the household’s income tax data with the data provided by the CBO, thereby establishing that the Appellant was liable for the HICBC. Had such a programme been implemented in 2013, HMRC could have determined who was liable for the charge from the outset, avoiding the need to recover the tax some years later, the shock to taxpayers being presented with unexpected assessments to tax, interest and penalties and the time and resources spent on the many appeals to this Tribunal.

We conclude that a staff member of the CBO is an officer of the board under the CRCA and accordingly, notification of liability to the CBO is capable of being notification to an officer of the board for the purposes of section 7 TMA.

HMRC further submit that the information provided by the Appellant did not amount to “giving notice”. Miss Halfpenny argues that the taxpayer must inform HMRC of their chargeability to income tax. She says the purpose of Ms Zefi’s February 2018 call was to stop receiving child benefit, not to notify chargeability for a particular year of assessment.

She further submits that the information provided was not sufficiently clear to form the basis for the issue of a notice to file or assessment. She argues that it was unclear whether the income figure mentioned was the total amount received in the year, or the headline rate and it might be that her income would be less in the following year and below the threshold so the officer would not know whether a notice to file was required for either 2017/18 or 2018/19.

The purpose of the telephone call was to inform the CBO of a change in circumstances as the Appellant believed that she was no longer entitled to child benefit as her income “is above 50,000 now”. The Appellant’s purpose is not however relevant to whether she gave notice of her liability to tax. We consider that HMRC have taken too narrow a view of giving notice. In our view, a person gives notice of their liability if they provide information to HMRC such that HMRC is able to conclude that a liability to tax arises. In the course of the February 2018 phone call, Ms Zefi informed the HMRC officer that her income exceeded £50,000 but was less than £60,000. Having reviewed the transcript of the conversation as a whole, we find that the mutual understanding was that Ms Zefi’s income for the year (2017/18) was over £50,000. The officer explained in some detail that the consequence, if the Appellant chose to continue receiving child benefit, was that she would be subject to a tax charge which had been brought in in 2013 which would claw back a percentage of the child benefit where her income was between £50,000 and £60,000 and that the tax would claw back 100% of the benefit if her income exceeded £60,000. The officer also explained that Ms Zefi needed to fill in a self-assessment tax return in order to pay the tax and on the basis that this was the first year when tax was due set out the deadlines for submitting the return on paper or electronically.

We find that by the end of, and as a result of, the conversation of 18 February 2018, an officer of the board was aware that Ms Zefi’s income for the 2017/18 tax year exceeded the HICBC threshold and that she was therefore liable for the HICBC charge for that year.

We find that Ms Zefi gave notice to an officer of the board that she was liable for income tax in accordance with section 7 TMA.

Although notice must be given where a person is chargeable to income tax “for a year of assessment” it would be impractical if a taxpayer has to give a fresh notification each year. In practice, once a taxpayer is in the self-assessment system, HMRC sends a notice to file each year unless and until the taxpayer indicates they do not need to complete a tax return. Similarly, we find that once a taxpayer has notified a new source of liability to income tax, the presumption of continuity applies so that they do not have repeatedly to notify that source to HMRC. It is assumed the source continues until the taxpayer informs HMRC that the source has ceased to be taxable or ceased to exist.

HMRC’s next point is that, even if the phone call did constitute notice, it did not meet the formal requirements as it was not in writing as required by the definition of “notice” in section 989 Income Tax Act 2007. Section 989 provides, so far as material:

“notice” means notice in writing…”

The definitions in section 989 apply “for the purposes of the Income Tax Acts”.

The schedule to the Interpretation Act 1978 defines “the Tax Acts” as the Income Tax Acts and the Corporation Tax Acts”.

The same schedule defines the “Income Tax Acts” as “all enactments relating to income tax, including any provisions of the Corporation Tax Acts which relate to income tax.”

Section 118 TMA defines “the Taxes Acts” as meaning

“this Act [the TMA] and:

(a)

The Tax Acts…”

It follows that the TMA is not one of the Tax Acts and so cannot be one of the Income Tax Acts. Therefore, the definition in section 989 Income Tax Act 2007 does not apply to the TMA.

Miss Halfpenny has not provided any other reference to a requirement for writing, and we find that notice under section 7 TMA may be given orally; there is no requirement that the notice be in writing.

Finally, HMRC argue that if the telephone call did amount to notice to an officer of the board, it was given outside the “notification period” which is defined in section 7(1C) TMA as follows:

“7(1C) In subsection (1) “the notification period” means

(a)in the case of a person who falls within subsection (1A), the period of 6 months from the end of the year of assessment, …”

HMRC submit that the “notice” given on 18 February 2018 was too late for the 2016/17 tax year and too early for the 2017/18 tax year and the 2018/19 tax year and therefore could not be a valid notice for the 2017/18 tax year and the 2018/19 tax year. We agree that the notice was too late for 2016/17, having been given, more than ten months after the end of the tax year.

HMRC’s approach assumes that the notification period begins on 6 April immediately following the tax year in question and ends six months thereafter. That is, notice cannot be given before the end of the tax year, even when it is apparent during the course of the tax year that a liability arises. This interpretation clearly creates absurd results. If HMRC’s interpretation is correct, it means where, for example, a taxpayer knows they have a liability for a tax year and gives notice to HMRC on 1 April within the tax year, they are to be regarded as not having given notice and could be assessed to penalties for their failure to do so! This absurdity cannot have been intended.

The purpose of section 7(1C) is to impose a time limit by which a taxpayer must notify HMRC of their liability to tax. In our view, the better construction of section 7(1C) is that the “notification period” sets the end date by which the taxpayer must notify HMRC of their liability, but that does not preclude the taxpayer from giving a valid notice before the end of the tax year.

In summary, we find that:

Accordingly, we find that Ms Zafi gave notice of her liability to the HICBC within the notification period for 2017/18 and, applying the presumption of continuity, for 2018/19.

Accordingly, we find that Ms Zafi gave notice to an officer of the board of her liability to the HICBC within the notification period for 2017/18 and, applying the presumption of continuity, for 2018/19.

Ms Zefi did not therefore fail to meet her obligation under section 7 TMA and so the penalties for failure to notify assessed under schedule 41in relation to 2017/18 and 2018/19 are not due.

We have found that the Appellant met her obligation to notify HMRC of her liability to the HICBC under section 7 TMA. This has consequences for the substantive charge as well as for the penalties.

The discovery assessments in relation to the HICBC charge were issued on 26 January 2023. HMRC submit that they are in time as section 36(1A)(b) provides:

“(1A) An assessment on a person in a case involving a loss of income tax…

(b)

attributable to a failure by the person to comply with an obligation under section 7…

May be made at any time not more than 20 years after the end of the year of assessment to which it relates…”

HMRC relied solely on section 36(1A)(b) to make assessments more than four years after the end of the relevant tax year.

We have found that Ms Zefi did not fail to comply with her section 7 obligation, so section 36(1C)(b) does not apply.

The assessment for 2018/19 is within the normal four-year time limit set out in section 34A TMA.

The assessments for 2016/17 and 2017/18 were made more than four years after the end of the relevant years. Those years can only be assessed, under section 36 TMA if the loss of tax was brought about carelessly or deliberately. The burden of proof in relation to behaviour is on HMRC. The penalty assessments were made on the basis that Ms Zefi did not act deliberately. HMRC have not sought to argue that the loss of tax was brought about carelessly. They have not addressed the question. The issue of reasonable excuse was considered in relation to penalties, but this is not the same test as whether the Appellant took reasonable care in relation to the HICBC charge and HMRC have not made any submissions on the latter point. We therefore find that HMRC have not met the burden of proving careless behaviour.

It follows that the HICBC assessments for 2016/17 and 2017/18 are out of time and the assessments are invalid.

The penalty assessments were made on 26 January 2023. Paragraph 16(4) of schedule 41 provides for the time limit for making a penalty assessment:

“(4)

An assessment of a penalty …must be made before the end of the period of 12 months beginning with:

(a)

the end of the appeal period for the assessment of tax unpaid by reason of the relevant act or failure in respect of which the penalty is imposed; or

(b)

if there is no such assessment, the date on which the amount of tax unpaid by reason of the relevant act or failure is ascertained.”

We have found that the assessment for 2016/17 was invalid and so, for these purposes, paragraph 16(4)(b) applies as there is “no such assessment”. Officer Savory’s witness statement states that he ascertained the amount of tax unpaid on 10 May 2021 when he was able to quantify the tax and make his “discovery”. The penalty assessment was made more than 12 months after this date and was accordingly out of time.

For the reasons set out above, we have decided that:

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.