In Burgess & Anor v HMRC  the Upper Tribunal (UT) found that HMRC had failed to discharge its burden of proof in making discovery assessments.
- The Metropolitan Police had found a safe deposit box belonging to Michael Burgess containing £97,970 in cash and reported this to HRMC.
- HMRC was out of time for normal assessment andraised Discovery Assessments, under s29 TMA 1070.
- The taxpayers appealed.
- Mr Burgess and the Company had challenged the discovery assessments before the FTT only on the issue of whether and to what extent there had been any underdeclaration of profits.
- The FTT agreed with HMRC that Mr Burgess and the Company had understated their taxable income and dismissed the appeal see Brimheath Developments Limited & Michael Victor Burgess v HMRC  FTT TC03438.
The taxpayer appealed to the Upper Tribunal (UT) on the grounds that HMRC had failed to discharge its burden of proof as to whether:
- The relevant conditions for the issue of discovery assessments had been met.
- Whether the assessments were in time.
- HMRC argued that the taxpayer's scope of the appeal to the FTT had to be determined only by reference to the case they had put forward to the FTT: this had not considered whether the relevant conditions for a discovery assessment had been met.
- Mr Burgess and the Company argued that they had not waived or conceded challenges in relation to the techical aspects of making a discovery assessment. The burden of proof falls on HMRC to make their case on these grounds and they failed to do so before the FTT.
The UT concluded that, in order to be successful at the FTT, either:
- A valid discovery assessment had to be made by HMRC or,
- the taxpayers had to concede these issues.
- The UT found that, in the absence of any positive case put forward by HMRC, the FTT had erred in law.
- The burden of proof with regard to discovery conditions for carelessness lay on HMRC and time limits for assessment had to be met.
- As there was no express concession by Mr Burgess and the Company, none could be inferred.
The UT reduced the assessments were reduced to zero.
- HMRC have to prove that all required conditions are met in order for a discovery assessment to be considered valid.
- The UT acknowledged that the result was an unsatisfactory conclusion, as Mr Burgess and the company had been found to have understated their taxable income.
Useful guides on this topic
How to appeal a tax penalty
Essential reading in cases were there are penalties too
Discovery assessment and time limits
How far HMRC can go back, what conditions must be met for a valid discovery
Penalties: Error in a return or document
How work out penalties for different forms of inaccuracies
DOTAS: Disclosure of Tax Avoidance Schemes
Rules for declaring use of tax schemes
UT Case reference: Burgess & Anor v HMRC