In Raymond Tooth v HMRC [2019] EWCA 826 the Court of Appeal confirmed that HMRC's delay in raising a discovery assessment had rendered it invalid. The decision was subsequently appealed by HMRC. The Supreme Court under different reasoning ruled that there was no discovery. 

The normal time limit for a Discovery Assessment is 4 years, but this is extended to 6 if the taxpayer was careless or 20 if the error was deliberate.

  • Tooth used a tax scheme to create an employment loss in 2008/09.
  • This loss was utilised against his 2007/08 income.
  • Due to software issues, the loss was included on the partnership pages of his Return: disclosure of this fact, and the reasons, was included on his return.
  • Disclosures about the scheme were also included, with a note that a DOTAS number had been applied for but not received.
  • HMRC enquired into the 2007/08 return on 14 August 2009, but this was under the wrong section (Sch 1A rather than s9A of TMA 1970).
  • The tax scheme was defeated in 2012.
  • In 2014 HMRC raised a discovery assessment (over six years after the tax year in question).

The FTT and UT found for the taxpayer. HMRC was allowed to appeal to the Court of Appeal.

The COA considered the concept of staleness and then retraced the timeline of HMRC's inquiry and correspondence.

It concluded that HMRC had been aware of the insufficiency on the tax return early on, however, HMRC had not acted then and had delayed in raising the correct type of assessment. As a consequence, when it did raise an assessment, there was no new discovery: it lost its newness and this made the assessment invalid.

HMRC had also appealed on the basis that the taxpayer's behaviour was deliberate. The court divided this into threesub-issues:

(i) whether there was an inaccuracy in the return,

(ii) whether that inaccuracy was deliberate,

(iii) whether the deliberate inaccuracy resulted in an insufficiency in the assessment or a loss of tax.

It concluded that there was no inaccuracy on the return because although the losses were included in the wrong place of the return he had fully explained what he had done and no one thought that he was a partner or the loss was a partnership loss.

Therefore there was no deliberate inaccuracy.

The result did result in an insufficiency in the assessment because the entry of a figure for a partnership loss in the relevant box fed automatically into the computation of Mr Tooth's tax liability for the relevant year, this entry did as a matter of fact cause his self-assessment to be insufficient.


Useful guides on this topic

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

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

External Link: Raymond Tooth v HMRC [2019] EWCA 826