The judgement in HMRC v Tooth

A recent Supreme Court decision examined in some detail HMRC’s powers in relation to issuing a discovery assessment. HMRC generally use discovery assessments where the statutory time limit for looking into a return has expired.

If certain conditions are satisfied, then HMRC can make a discovery assessment:

  • 4 years from the end of the year of assessment in which the further liability to tax arises where the loss of tax is not due to careless or deliberate behaviour
  • 6 years from the end of the year of assessment in which the further liability to tax arises where the loss of tax is due to careless behaviour of the relevant person.
  • 20 years from the end of the year of assessment in which the further liability to tax arises where the loss of tax is due to deliberate behaviour of the relevant person.

The case in question centred on two main issues. Firstly, whether there had been a deliberate inaccuracy in a 2007-8 tax return enabling HMRC to issue a discovery assessment within the extended 20-year limit and secondly, whether HMRC had made a valid discovery.

The First-tier Tribunal (FTT), the Upper Tribunal (UT) and the Court of Appeal all decided that HMRC could not assess the taxpayer. The Supreme Court held that the interpretation of the tax return by HMRC did not properly consider the whole document and that there was no inaccuracy. Commenting further, the Judges opined that even if there was, they would not have been satisfied that such an inaccuracy was deliberate. The Supreme Court also rejected the notion of 'staleness' in respect of the discovery assessments.

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