In John Hicks v HMRC [2018] TC06301, the First Tier Tribunal (FTT) held that HMRC did not meet the criteria for a discovery assessment when they tried to restrict the use of losses carried forward from a year under enquiry.

Where HMRC was provided with insufficient information to be aware that tax has been underpaid, it has the ability to issue a Discovery Assessment once it becomes aware of the deficiency (s29 TMA 1970). The time limit for this is four years unless HMRC can show the taxpayer failed to take reasonable care (six years) or deliberately understated the tax due (twenty years). A taxpayer is protected from discovery by making suitable disclosures to HMRC.

Mr Hicks claimed a trading loss on his 2008/9 tax return, which was carried forward to use against the profits arising on the same trade in 2009/10 and 2010/11.

HMRC opened an enquiry into the 2008/09 return, contending that no trading loss arose. On 30 March 2015 HMRC raised discovery assessments into 2009/10 and 2010/11.

Mr Hicks requested a Statutory Review of the decision to open discovery assessments, but this confirmed HMRC’s decision; it did note that HMRC should rely on s29(4) (failure to take reasonable care) in preference to s29(5) (insufficient disclosure) to justify the assessments. He then appealed.


  1. Was HMRC able to make a discovery?
    1. The Officer had been aware of the situation at least five months earlier, but certainly within nine months of the assessments being issued.
    2. As HMRC was not “sitting on its hands” a delay of nine months is not the “exceptional case” required for the information to be “stale”
  2. Did the outcome of the statutory review preclude HMRC relying on s29(5)?
    1. No; even if the decision did bind HMRC, which was by no means certain, the FTT was still at liberty to consider the point.
  3. Was sufficient disclosure made to prevent discovery?
    1. The 2008/09 and 2010/11 returns included the scheme reference number
    2. An enquiry was open into 2008/09 and it was clear that the losses arising were being used in 2009/10 and 2010/11
    3. HMRC had sufficient information to be aware of the potential loss of tax.
  4. Was HMRC outside the time limit?
    1. Over four years had elapsed between the end of the tax years and the discovery
    2. It was reasonable for Hicks to rely on professional advice as to the effects of the transactions; HMRC did not contend that any error was deliberate
    3. Hicks had taken reasonable care so the discoveries were out of time.


The substantive issues surrounding the 2008/09 loss were not relevant to this decision. For context, the losses arose under a tax avoidance scheme, which was eventually defeated by HMRC in 2016. 

The taxpayer did argue that third party information known to the officer should be taken into account in considering whether sufficient disclosures were made to prevent discovery. The FTT found that the test in legislation is information supplied by the taxpayer; third party disclosures are not sufficient.

UPDATE: HMRC have appealed this decision to the Upper tribunal, the case is expected to be heard in 2019.

Useful guides and links 

Statutory Review
How and when you can ask for a review of a decision by HMRC

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


John Hicks v HMRC [2018] TC06301