The Commissioners for HMRC v Jason Wilkes

A discovery assessment under section 29(1)(a) of the Taxes Management Act 1970 is confined to income or chargeable gains that ought to have been assessed but were not. It cannot be used to recover a free-standing income tax charge merely because liability to that charge depends on the taxpayer’s income. The court cannot replace “income” with “amount” where that would require a substantial departure from the statutory language. Legislative rectification is available only in a plain case where the intended purpose, inadvertent failure and substance of the correction are sufficiently certain. Where Parliament may not have considered the issue, or may have chosen a different legislative mechanism, rectification would amount to judicial legislation.

HMRC issued discovery assessments for high income child benefit charge in respect of three tax years. The taxpayer had not delivered returns and had not been notified that he was required to do so. The First-tier Tribunal allowed his appeal, and the Upper Tribunal dismissed HMRC’s appeal in [2021] UKUT 0150 (TCC).

HMRC appealed to the Court of Appeal. The issues were whether section 29(1)(a) of the Taxes Management Act 1970 could cover an amount of income tax rather than income, whether the assessments could be supported by the taxpayer’s income having been subject to self-assessment, and whether Schedule 1 to the Finance Act 2012 could be rectified.

1. Appeal dismissed. The Court of Appeal unanimously upheld the Upper Tribunal’s decision.
2. Section 29(1)(a) of the Taxes Management Act 1970, in its relevant form, referred to income that ought to have been assessed to income tax. Its natural meaning did not extend to a free-standing charge such as high income child benefit charge, which was neither income nor charged on income. The statutory purpose did not justify replacing “income” with “amount”.
3. Even if “income” could be read as “amount”, that would not resolve the difficulty. High income child benefit charge was an additional charge to income tax, not an amount assessed to income tax. The proposed construction would require a more radical departure from the statutory language.
4. The power under section 29(1) was linked to the particular loss of tax resulting from the condition discovered under section 29(1)(a), (b) or (c). Where the condition was unassessed income, the assessment had to address income tax lost on that income. HMRC could not use the taxpayer’s failure to submit a self-assessment, and the limited connection between income and the charge, to recover unpaid high income child benefit charge. The assessments did not make good any loss of income tax on the taxpayer’s employment income.
5. The principles in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 permitted correction only in a plain case. The court had to be abundantly sure of the statutory purpose, an inadvertent failure to give effect to it, and the substance of the provision Parliament would have enacted.
6. Those conditions were not met. It was possible that Parliament had not addressed discovery assessments where no return had been delivered, or had considered existing powers and chosen not to provide such a power. It was also uncertain whether Parliament would have amended section 29, deemed the charge to be income, created a separate assessment regime, or introduced simple assessments. Rectification would therefore constitute judicial legislation.
7. The retrospective amendment made by section 97 of the Finance Act 2022 did not affect this appeal.

1. Court of Appeal (Civil Division): Appeal dismissed. The Upper Tribunal’s decision was upheld.
2. Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal from the First-tier Tribunal was dismissed in [2021] UKUT 0150 (TCC).
3. First-tier Tribunal: The taxpayer’s appeals against the discovery assessments succeeded in a decision dated 15 June 2020.