Larry Trachtenberg v The Commissioners for HMRC

A permissive regulation-making power concerning tax assessments does not, without clear language, exclude the ordinary assessment machinery in the Taxes Management Act 1970. A charge to income tax on an unauthorised pension payment arises in the tax year in which the payment is made, even though the payment is not income for other tax purposes.

An individual liable to the charges under sections 208 and 209 of the Finance Act 2004 must include them in that year’s self-assessment. Their omission can therefore make the assessment insufficient for section 29(1)(b) purposes. The availability of relief from the surcharge does not prevent the surcharge arising or remove it from self-assessment.

HMRC issued discovery assessments to Mr Trachtenberg for 2006/07 and 2009/10. They related to unauthorised payments from his registered pension scheme, taxable under sections 208 and 209 of the Finance Act 2004.

The First-tier Tribunal dismissed his appeal in a decision released on 9 May 2024. It held that section 29 of the Taxes Management Act 1970 could be used to assess those charges. Mr Trachtenberg appealed on that issue alone.

The Upper Tribunal considered whether assessment regulations under section 255 of the Finance Act 2004 were indispensable, and whether the charges were charges for a year of assessment which an individual had to include in a self-assessment return.

1. Appeal dismissed. HMRC validly raised the discovery assessments under section 29(1)(b) of the Taxes Management Act 1970.

2. Section 255 of the Finance Act 2004 gave a discretionary power to make assessment regulations. Its permissive language did not establish an exclusive, self-contained assessment code for unauthorised-payment charges. The provision that regulations might modify or apply provisions of the Tax Acts instead indicated that existing assessment provisions could operate. The contrary construction would leave HMRC unable ever to assess charges which Parliament had plainly imposed, an unworkable result inconsistent with the approach in Whitney v Inland Revenue Commissioners [1926] AC 37.

3. The statutory language made the charges under sections 208 and 209 charges for the tax year in which the unauthorised payment was made. The fact that an unauthorised payment was not income for other Tax Acts purposes did not alter the fact that a charge to income tax arose at that time. An individual liable for it was therefore required by section 9(1) to include it in the self-assessment for that year.

4. For 2009/10, sections 23 and 30 of the Income Tax Act 2007 expressly required the relevant individual liabilities under sections 208 and 209 to be added when calculating income tax. Those provisions were not a drafting error. Their later enactment as part of the Tax Law Rewrite project did not justify a different result for 2006/07.

5. A section 209 surcharge arose when the relevant payment was made and continued unless relief was granted. The possibility of relief under section 268 did not make the charge discretionary or place it outside self-assessment. The taxpayer’s omission of the charges made his self-assessments insufficient, satisfying section 29(1)(b).

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal and upheld the validity of HMRC’s assessments.
• First-tier Tribunal (Tax Chamber): dismissed the taxpayer’s appeal in a decision released on 9 May 2024.