In The Personal Representatives of Michael Wood v HMRC [2016] UKUT 0346 the Upper Tribunal (UT) has held that a discovery assessment does not have to be set aside just because the taxpayer has died.

  • In June 2010 the taxpayer disclosed an under-declaration of income to HMRC under a disclosure opportunity for medical professionals.
  • HMRC were not satisfied that the disclosure opportunity applied, and opened an investigation.
  • Consequently, in 2012 discovery assessments were raised for tax years 1992/3 through 2005/6 totalling £1.3m of tax together with penalties. 
  • HMRC went back 20 years with these assessments as they believed that the taxpayer had deliberately evaded a full disclosure of his income.
  • The taxpayer appealed, but died before any hearing took place. 
  • HMRC subsequently cancelled the penalties, but continue to pursue the tax assessed.

The point in dispute was whether HMRC also had to set aside the discovery assessments due to the death of the taxpayer.

The First Tier Tribunal (FTT) previously decided that this was not the case.  Requiring the taxpayer's personal representative to contest the disputed tax assessments would not be a breach of her human rights as they did not consitute being charged with a criminal offence.

This decision was upheld by the UT, who found that:

  • Just because the penalties were cancelled on the taxpayer's death did not mean that HMRC could not pursue the discovery assessment.
  • The penalties were cancelled because they were a criminal liability which cannot survive the person comitting the crime.
  • By contrast, the extended time limit for discovery assessments is part of a procedure to collect the correct tax due, and does not have a criminal or penal nature.
  • Although the taxpayer's personal representative may have difficulty in providing evidence to contest the assessments, this is no different to any other taxpayer who has not kept books or records for a period being assessed.

The appeal by the taxpayer's representative was therefore dismissed.  The case will now be remitted back to the FTT to consider the substantive appeal against the assessments.


Useful guides on this topic

How to appeal a decision of HMRC
Key steps in appealing a decision of HMRC.

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

Case reference:

The Personal Representatives of Michael Wood v HMRC [2016] UKUT 0346