TC09631 - [2025] UKFTT 01072 (TC)

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.