In HMRC v Raymond Tooth [2021] UKSC 17, the Supreme Court ruled on two important issues in relation to HMRC's powers in making Discovery Assessments. Entering the correct figures in the wrong boxes of a tax return because there is nowhere else in the return to put them and to then make a full disclosure of that fact, cannot be construed as a deliberate error and the concept of 'staleness' in respect of assessments has a very narrow application.

The normal time limit for a Discovery Assessment in respect of a loss of tax detected by HMRC in a tax return is four years, extended to six if the taxpayer is careless or 20 if the loss was deliberate.

  • Tooth used a tax scheme to create an employment loss carried back to 2007/08.
  • His adviser's tax software, Iris, which was approved by HMRC did not have the right boxes to claim this type of loss.
  • As a work-around, the loss was included on the partnership pages of the return, disclosure of the fact that this was in fact an employment loss and the reasons, was included on his return.
  • Disclosures about the tax loss scheme were also included, with a note that a DOTAS number had been applied for but not received. This extra disclosure ended by saying 'for all these reasons I assume you will open an enquiry'.
  • Predictably, HMRC enquired into the return. This was on 14 August 2009, but this was under the wrong section (Sch 1A rather than s.9A of TMA 1970).
  • The tax scheme was defeated in 2012.
  • In 2014 an officer of HMRC raised a discovery assessment on the basis that a loss of tax "was brought about deliberately". This allowed an assessment to be raised more than six years after the tax year in question.

The taxpayer argued that the main Discovery condition was not met as there was no deliberate error: it was very clear from the return that an employment loss was being claimed.

HMRC argued that the taxpayer had deliberately filled in the wrong part of the return: that created a deliberate error.

The taxpayer also argued that HMRC was out of time to make a Discovery, because, by 2014, the essential newness of the loss scheme was lost: the Discovery had become 'stale'.

The Supreme Court found that:

  • Looked at as a whole document, the return was not misleading: HMRC had noted from the outset that it was investigating an employment loss. There was no deliberate error in the return entries. 
  • The Discovery had not become 'stale'. There is no concept of staleness as during an enquiry, different officers of HMRC might handle a case and any of these can make a discovery, i.e. if missed by the previous one. There might be HMRC delays due to holidays or retirement however none of these would make a discovery stale either. 

As there was no deliberate error, the 20-year time limit did not apply and HMRC simply was too late in raising an assessment.


A lucky escape for the taxpayer who avoided an assessment for a tax scheme that did not work. With hindsight, it's clear that HMRC was overwhelmed by the volume of tax avoidance schemes in the noughties and simply did not have the systems or manpower in place to raise the assessments that it should have raised in time. 

There is a victory for common sense in that entering the right figures in the wrong boxes of a tax return because there is nowhere else in the return to put them and to then make a full disclosure of that fact, cannot be construed as a deliberate error.

We have a useful ruling on the concept of 'staleness'. Back in the FTT Discovery case Murano v HMRC [2020] TC7685, judge Anne Redston opined that she thought that "the case law on TMA s 29 has taken a wrong turning" in respect of staleness. We were all wondering what the Supreme Court would have to say on the matter. It has now corrected the direction of travel and confirms that within HMRC's assessment process it is extremely difficult for a discovery to become stale.

Useful guides on this topic

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

DIscovery assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences? Case law tracker.

Discovery assessment and time limits
FREEVIEW: How far HMRC can go back?

Penalties: Error in a return or document
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

DOTAS: Disclosure of Tax Avoidance Schemes
What are rules on Disclosure of tax avoidance schemes (DOTAS)? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

External link

HMRC v Raymond Tooth [2021] UKSC 17

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