For the years 2016/17 to 2020/21, Finola Owens had enough income to be liable to tax. She wasn’t registered for self-assessment so no returns were issued to her. In such circumstances she was obliged to ‘give notice’ to HMRC by 5 October following the end of each tax year that she was ‘chargeable to income tax’ for the year.
In August 2022, HMRC – having finally caught up – issued assessments for all the years charging tax, interest and penalties. Ms Owens appealed to the First-tier Tribunal (‘FTT’) in [2024] UKFTT 192 (TC). She lost. But for the wrong reasons.
As a rule, HMRC can’t issue an assessment for a tax year more than four years after the end of the year. But there are limited circumstances in which the time limit is extended. One of those is where a taxpayer has failed to notify chargeability to tax. Likewise, a penalty can be imposed where the taxpayer has failed to notify chargeability.
Thus the question of whether Ms Owens had given the required notice was at the heart of the case. So had she?
Well, her accountant had, in respect of each year, written to HMRC, saying, “We are writing to give notice of liability to tax under TMA 1970 s7(1)” – although in some years he had said “chargeability” instead of “liability”.
HMRC said that that wasn’t enough. The letters “did not constitute notifications pursuant to s7 TMA 1970 because they did not contain enough information to allow HMRC to make an informed decision as to how to proceed in assessing the type and quantum of the liability.” The FTT agreed: the wording “falls far short of the ordinary meaning of s7 TMA 1970. Upon receipt of the letters dated 5 February 2018 and 16 January 2019 HMRC were given no information as to what sort of tax [Ms Owens] was liable for, no indication of the amount and no information concerning the source of the taxable income.”
In saying this, HMRC and the FTT misunderstood both the wording and the purpose of the legislation. The obligation is simply to give notice of chargeability, and thus to put HMRC on notice of the need for a tax return. Once chargeability is notified, the onus is on HMRC to issue a notice requiring the taxpayer to file a return and a self-assessment of the tax due. For reasons known only to themselves, HMRC did not issue such a notice when they received notice of chargeability – or, indeed, at all. It was only in January 2022 that HMRC told Ms Owens that “they had become aware that her Agent had been sending notifications to Self-Assessment, had located these communications[!], had registered her for Self-Assessment and had issued her with a Unique Tax Reference number.”
Nonetheless, despite this rookie error, the assessments and penalties were correct for most years. Why? Because although notice of chargeability had been given, it had not (in most cases) been given by the 5 October deadline.
Morals? (1) If you’re chargeable to tax but haven’t been required to file a tax return, tell HMRC by 5 October; (2) If you’ve notified HMRC and they’ve ignored you – chill: it’s not your problem.
For more information on notifying HMRC of tax liability, please get in touch with your usual BKL contact or use our enquiry form.
