Commissioners for HMRC (Appellant) v Tooth (Respondent) On appeal from: [2019] EWCA Civ 826
If HMRC find out that a taxpayer’s assessment of tax has become insufficient, they have the power to make a fresh assessment (a “discovery assessment“) if one of two conditions is met.
Mr Tooth had taken part in a tax avoidance scheme and this appeal concerned whether the discovery assessment HMRC issued to Mr Tooth was valid. The appeal raised several issues of general importance about HMRC’s powers to make discovery assessments.
The discovery issue
Section 29(1) of the Taxes Management Act 1970 (the “TMA”) states that “if an officer of the Board or the Board discover […] that an assessment to tax is or has become insufficient“, the officer or the Board may make an assessment in the amount “which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax“.
Before the Supreme Court ruling the time limits for the Revenue to make a discovery ran from the end of the year to which the relevant assessment relates, rather than from the date of discovery, and therefore served as a trigger for the Revenue’s powers rather than to determine the period beyond which the taxpayer is safe from further assessment.
However, the Court ruled on two points which now cast doubt over whether the taxpayer is ever indeed safe from further assessment.
1. There is no principle of ‘collective knowledge’: section 29(1) focuses on the state of mind of the individual officer of the Revenue who makes the assessment; if an officer had already made a discovery, that must not be regarded as a discovery ‘once and for all’ by the Revenue such that other officers cannot make the same discovery in future.
2. There is no longer a concept of ‘staleness’: any idea that a discovery might lose its quality over time is contrary to the ordinary use of language, the leading authorities, and the statutory scheme. The question is whether the officer of the Board who is deciding whether to make a discovery assessment has subjectively made a discovery that there has been an under-assessment of tax. It is perfectly possible for someone to make a discovery even if it is something already known to others.
The Court was content to make this ruling as it was of the opinion that there is ample protection for the taxpayer:
- the Revenue must satisfy one of the two conditions in section 29 of the TMA, one of which regards a loss of tax to be brought about carelessly or deliberately;
- the statutory time limits depend on different levels of culpability; and
- the Revenue’s discretion to issue an assessment can be challenged in judicial review proceedings on public law grounds.
The ground breaking effect of this judgment means that a tax payer can be subject to a discovery assessment at any point in time and is in theory never safe from further assessment.
The quicker you respond to a HMRC Enquiry or tax investigation the better. If you are facing a tax investigation, you should seek legal help as soon as possible to reduce the risk of heavy penalties.
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