Seminar 16th January 2015.
“Discovery” assessments.
By Robin Mathew QC ( of 13 Old Square Chambers, Lincoln’s Inn).
This lecture considers the substantive, and procedural, requirements and difficulties in making
a “discovery” assessment.
Preamble: Once the initial (12 month) period for a formal enquiry into a self assessment
return has elapsed1, section 29 of the Taxes Management Act 1970 (“section 29”) provided
the mechanism by which in the following four years both income tax and capital gains tax
may assessed on individuals (whether as a consequence of or in support of an enquiry) and
collected..
The power to assess is enabled (or triggered) by an HMRC officer making a “discovery”
complying with the detailed rules set out in section 29.Other taxpayers are subject to the same
procedure mutatis mutandis2.The “discovery” must be of (i) non assessment or (ii) an
insufficiency in an assessment or (iii) that an excessive relief from tax has been claimed or
given.
Although a “discovery” power dates from the first income tax Act of 1803, the 1970 Act
power had to be amended radically for the introduction for the introduction of the selfassessment regime and both the character of “discovery” as well as the conditions governing
its use have changed significantly.
Before self assessment and since, the making of the discovery assessment has been much
litigated – particularly nowadays before the First Tier Tribunal –not just whether there has
been a “discovery” but whether the special statutory conditions in section 29 are met. The
statutory purpose, which the power underpins, has remained much the same over the last 200
years. As I have said, it is to initiate collection of the uncollected tax or excessive repayments.
\Throughout its history, the exercise of this power has been controversial. It remains so. While
the statutory basis of the power has changed radically over the years, it pivots, as it always has
Section 9A of the Taxes Management Act 1970 – possibly leasding to an adjustment of the self assessment
return
1
2
For corporation tax see paras 41 to 45 of Schedule 18 to the Finance Act 1998 and for stamp duty land tax see
paras 28 to 30 of Schedule 10 to the Finance Act 2003
done, on the meaning at law of the word “discover.” While meaning has changed and
“developed” according to the various statutory contexts, albeit similar in purpose, the judges
have developed from time to time different legal characterisations, at law, of the word and
therefore the manner in which this fundamental requirement, for the exercise of the statutory
power, can be lawfully exercised.
An outline: Once the “discovery” has been made, the assessment is not valid unless one, or
both, of two alternative conditions has been met. First, that the insufficiency etc.is due to the
deliberate or careless behaviour (formerly fraudulent or negligent conduct) by the taxpayer or
some person acting on their behalf. Second that at the period permitted for enquiry (or any
enquiry during that period was concluded) an HMRC officer could not have been reasonably
expected on the basis of information supplied to him to be aware that the insufficiency etc. I
review each element in detail below.
1.
The basic enactment.
I consider first, the scheme of self assessment in the context of this exceptional power and.
then the meaning at law now of “discover” in section 29.. and, second, the conditions or
circumscriptions to the use of the power and, third, I consider the time limits governing its use
and other such issues.
I start with the history of the power because higher courts, particularly the Court of Appeal,
are always keen (as I shall show) to found their analysis, and interpretation, of section 28 in
that contest.
In what circumstances does an officer of HMRC “discover” an insufficiency pursuant to
section 29 (1) of the Taxes Management Act 1970, as amended.
The statutory provision (for this part of the seminar) is essentially thus:
By subsection (1) of section 29 of the 1970 Act3, it is provided:
“29 Assessment where loss of tax discovered
3
Amendments -- This section (including the heading) substituted by FA 1994 ss 191, 199 with effect from the
year 1996-97 as respects income tax and capital gains tax and, as respects corporation tax, with effect in relation
to accounting periods ending after 30 June 1999 (by virtue of Finance Act 1994, Section 199, (Appointed Day)
Order, SI 1998/3173 art 2). In the case of partnerships commenced before 6 April 1994 it has effect from 199798.
(1) If an officer of the Board or the Board discover, as regards any person (the
taxpayer) and a [year of assessment] 2—
(a)
that any [income which ought to have been assessed to income tax, or
chargeable gains which ought to have been assessed to capital gains tax,] have not
been assessed, or
(b)
that an assessment to tax is or has become insufficient, or
(c)
that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and
(3) below, make an assessment in the amount, or the further amount, which ought
in his or their opinion to be charged in order to make good to the Crown the loss
of tax.”
My emphasis, in bold type, of course,
Thus the salient words, and phraseology, giving the relevant power to assess are
“discover” and “…may, subject to subsections (2) and (3) below, make an assessment
in the amount which ought in his opinion…to be charged…”4
2.
Section 29 in the scheme of self assessment
As you know, self assessment for individuals was a radical reform introduced5 by the
Finance Act 1994, which (as I have indicated) in turn made necessary administrative,
and procedural, amendments to the 1970 Act. The Inland Revenue issued a manual
explaining the changes: “Self Assessment: the legal framework (SAT2 (1995)6.
As random enquiry by HMRC was permitted by Parliament for the first time,7 this
potentially oppressive power8 was policed by Parliament with strict statutory rules,9
4
Passages in bold are emphasised for the purpose of this part of the seminar.
5
The new regime was announced by the then Chancellor of the Exchequer as part of measures of deregulation
and simplification in the March 1993 budget statement (Hansard, 16 March 1993, col 184). According to
the Inland Revenue (as it then was), the Finance Act 1994, and the bill before it, were part of a “…long
process of consultation and development…” that had “…gone back a decade or more.” (Inland Revenue,
Tax Bulletin, Issue 10 available at www.hmrc.gov.uk/bulletins/tb10.htm )
6
It was intended that the self assessment process would be “…a fairer and more straightforward system for
people who receive tax return.” and would “…give taxpayers greater control.” (SAT2, paragraph (i)
20/129).
7
for the first time since the Act of 1803 – an enquiry, on domestic tax, which did not have to be justified by the
relevant authority.
H.H. Monroe’s” Intolerable Inquisition?: Reflections on the law of Tax” Stevens 1981 (Thirty third Hamlyn
Lecture) uis a very readable history of the introduction of income tax.
8
particularly to mitigate uncertainty (by exposure to enquiry or late assessment) for the
law-abiding taxpayer. Every aspect of a return could be tested by statutory enquiry for
the first time.10
A new section 29 of the 1970 Act was substituted for “discovery” assessments.11
As Park J, a very experienced tax lawyer as Andrew Park QC, said in Langham v
Veltema12: “The [introduction of the] self-assessment system was a significant change
to the tax machinery. It imposed new burdens on taxpayers by requiring them to submit
fuller tax returns than had previously been required (not that earlier forms of returns
were by any means short and simple), including in many cases the taxpayer’s own
calculation of the amount of tax payable by him: his “self-assessment”. The new
burdens were balanced by new protections for taxpayers who conscientiously complied
with the system, in particular by new and tighter time limits on the power of the
Revenue to make further tax assessments.”
Moses LJ explained the changes to section 29 in the Court iof Appeal in
Tower
MCashback LLP 1 v HMRC13His observations (para 24) were not commented on or
addressed in the Supreme Court in that case::
"...As I have already observed, apart from a closure notice, and the power to correct
obvious errors or omissions, the only other method by which the Revenue can impose
additional tax liabilities or recover excessive reliefs is under the new s 29. That confers
9
Built into the self assessment regime were several time limits: for filing the return (by the following 30
September or 31 January); for “repair” by the Revenue (9 months); for amendment by the taxpayer (12
months); and for the opening of an enquiry (12 months). The regime was to be intolerant of delay:
automatic fixed penalties are imposed if the January filing deadline is missed and the return remains
outstanding six months later.
10
Section 9A of the 1970 Act. The informality of most enquiries, of taxpayers, under the previous system
was done away with. The questions posed by the tax return form and the guidance published for completion
of the tax return form took on a new significance and importance. This was acknowledged by the Revenue
in their Tax Bulletin Number 10 which commented: “The return form is perhaps the single most important
element of a self-assessment system.”
11
Section 191 of the Finance Act 1994 (un-amended during passage through Parliament).
[2002] EWHC 2698 (Ch) This passage cited by Henderson J in the Household Estate Agents [2007]
EWHC 1684 (Civ) at paragraph 27 where he noted that the Court of Appeal, while reversing his decision on
other grounds, in the Veltema case had no criticism of Park J’s summary of the effect of the introduction of self
assessment. .
12
13
[2010] EWCA Civ 32 [2010] STC 809 (paras 12 – 18).
a far more restricted power than that contained in the previous s 29. The power to make
an assessment if an inspector discovers that tax which ought to have been assessed has
not been assessed or an assessment to tax is insufficient or relief is excessive is now
subject to the limitations contained in s 29(2) and (3) (s 29(1)). Section 29(2) prevents
the Revenue making an assessment to remedy an error or mistake if the taxpayer has
submitted a return in accordance with s 8 or s 8A and the error or mistake is in
accordance with the practice generally prevailing when that return was made. Section
29(3) prevents the Revenue making a discovery assessment under s 29(1) unless at least
one of two conditions is satisfied (s 29(3)). The prohibition applies unless the
undercharge or excessive relief is attributable to fraudulent or negligent conduct (s
29(4)) or having regard to the information made available to him the inspector could
not have been reasonably expected to be aware that the taxpayer was being
undercharged or given excessive relief (s 29(5)). There are statutory limitations as to the
time at which the sufficiency or otherwise of the information must be judged. These
provisions underline the finality of the self-assessment, a finality which is underlined by
strict statutory control of the circumstances in which the Revenue may impose additional
tax liabilities by way of amendment to the taxpayer's return and assessment."
Time limits for assessment were extended - but recently somewhat curtailed (see
below) - not only in cases where there was negligence or fraud (now deliberate or
careless conduct) by a taxpayer but also where the “fuller” return was deficient in
information14. In Regina (on the application of Pattullo) v R & C Commissioners
15
the
judge, Lord Ballantyne (of the Outer House of the Court of Session), regarded the
14
The regime of self-assessment requires the taxpayer to include in his return an assessment of the amount
payable by him by way of income tax in respect of the income declared by him in his return, s.9 TMA.
Such return and assessment may be amended by the taxpayer within 12 months of its filing date under
s.9ZA. In addition HMRC is entitled to correct obvious errors or omissions under s.9ZB within 9 months
of its delivery to them by the taxpayer. HMRC may also within a limited time enquire into a return by
giving notice under s.9A. Both the taxpayer and HMRC may amend the return in the course of the enquiry
in accordance with ss.9B and 9C and may refer questions to the Tribunal in the case of a doubt. An
enquiry is terminated by a closure notice given under s.28A. Parallel provisions exist in relation to a
partnership return and partnership statement required under s.12AA and 12AB. After the completion of all
these steps or the expiration of the periods in which they may respectively be taken a taxpayer's selfassessment is, effectively, final unless a 'discovery' is made by an officer of HMRC in accordance with
ss.29 and 30B TMA, see, for example, Monro v HMRC [2009] Ch 69.: This description is taken from para
37 of R & C Commissioners v Lansdowne Partnership Limited Partnership [2011] EVCA Civ 1578.
15
[2010] Simon’s Tax Cases 107
general powers to require information (then in section 20 et seq of the 1970 Act) as part
of a code leading, if appropriate, to a section 29 assessment16.
The new provision, in accordance with policy imposed for self assessment, not only
required a “discovery” as previously but concurrently, as I have indicated,the HMRC
officer had to address the quality of the failure by the taxpayer – that is to say, whether
it was a case of negligence and fraud (later broadened to deliberate or careless conduct)
and/or whether at the end of the “enquiry window” an HMRC officer could not
reasonably have been expected to have been aware of the insufficiency, on the basis of
the information provided,. The latter test is objective –that is to say, the question is
whether a hypothetical HMRC officer (with the test, fairly and reasonably, in mind)
could find the information provided inadequate. There is much judicial consideration
on the point (see below).
The other point is that the statute says that the HMRC officer “may” assess subject to
subsection (2) and (3) conditions. What is the effect of “may” rather than “shall”? This
word also underpins the section and its use, in my view. It indicates how important it is
that consideration of the other conditions in section 29 is given at the point of
consideration of the making of an assessment.. But it does not in my view weaken the
obligation to assess, or collect, the relevant amount of tax. This may be a controversial
view but I think correct, as I explain.
In Hankinson, the Court of Appeal17.held that section 29 (4) and (5) are not preconditions to the issuing of an assessment (after the making of a “discovery”) but
conditions to be satisfied (the burden being on HMRC) if the assess,. This then may be
tested at the hearing of any appeal (i.e. at the substantive hearing)ment was to be valid.
On appeal, the tribunal then can decide whether these conditions have been met: in fact:
see R & C Commissioners v Lansdowne Partners Limited Partnership (Morritt Ch,
Moses & Patten LJJ) R & C Commissioners v Charlton and ors [2012] UKFTT 770
(TCC), where HMRC succeeded, or would have , on the substantive issues but failed on
this procedural point.
13. This seems odd as those powers were enacted in 1976 – long before the scheme of self assessment was
under consideration, although of course the old section 29 of the 1970 Act was widely used to
“encourage” returns.
17
[2011] EWCA Civ 1566
3. The meaning of “discover”
The word “discover” is not defined by the legislation and never has been. The fact of a
“discovery” has been a necessary pre-condition to special or additional assessments, to
make up for an insufficiency of tax paid, for many years. 18 In the beginning it was the
discovery of an individual who should have paid tax, now it is of an “insufficiency” in
the return. As I have indicated, Section 29 of the 1970 Act is expressly subject to two
further statutory circumscriptions or conditions, which the earlier versions were not
19
So before an officer can make an assessment in an amount which in his opinion ought
to be charged, he must not only make the “discovery” but also be satisfied as to the
matters mentioned in subsection (2)- that is whether or not the taxpayer’s return had
been made in accordance with a “practice prevailing” at the time it was made - and,
second, whether (because subsection (3) says so) the requirements described in
subsection (4) and (5) are fulfilled.
Prior to the 1970 Act, it was generally held that for a “discovery” to have been made it
was sufficient for the inspector to have “reason to believe”, for him to “be satisfied” or
for him to “come to the conclusion” on the information before him.20 Given that its
pertinent history informs the current enactment, the pre–self assessment (i.e. preFinance Act 1994) case law remains relevant. This is accepted by HMRC – see the
Enquiry Manual (for example paragraph EM3306). As HMRC’s Statement of Practice
18
A short history of the power to make a discovery assessments is as follows: Under statutes of 1803 (43
George III, Chapter 99 and amending statutes including 43 George III, Chapter 161), the Commissioners as the
assessing authority of a district were able to assess persons “discovered” to be chargeable to tax, i.e. persons
who the authorities believed, on the material before them, to be chargeable. The Income Tax Act 1842 contained
similar provisions. Under section 161 an inspector or surveyor had power to inspect and examine all returns and
assessments. He could amend the returns and assessments if he “shall find or discover” that a person “who
ought to be charged” has not been. The discovery power was retained in the Taxes Management Act 1880. By
section 52 of that Act if the surveyor “discovers” any properties or profits chargeable to the duties have been
omitted from the first assessment then the person would be liable for the shortfall. The history is set out by the
Lord Chief Justice in Rex v Commissioners of Taxes for St Giles and St George Bloomsbury ex parte Hooper
(1915) 7 Tax Cases 59 at p.52. The discovery power was subsequently incorporated in section 125 of the
Income Taxes Act 1918 and s 41 the Income Taxes Act 1952, if an Inspector “discover[ed]” an omission, an
undercharge or an over-allowance of relief from the first assessment, or an absence of a return, the inspector
could bring that into the assessment. The “discovery” was the “condition precedent to invoking the section”
(Simon’s Income Tax, Volume 1 (2nd ed, 1952) paragraph 119). Thereafter, the section was repeated in the
Income Tax Management Act 1964,section 5, and the Finance Acts of 1965, 1966, and 1967.
19
20
those in subsections (2) and (3)).
Simon’s Income Tax, Volume 1 (2nd ed, 1952: paragraphs 257-263).
1/06 (SP 1/06)21 states “…mere suspicion that an assessment may be insufficient is not
adequate grounds for making a discovery assessment” (paragraph 5). It is clear from
the statutory language that the officer must have reached a formal conclusion prior to
raising the assessment. As SP 1/06 says: “The requirement that HMRC must discover
that an assessment is insufficient restricts the opportunity for using discovery powers to
make an assessment” (paragraph 8).
In construing the word “discover” (or “discovers”), in section 29 and its predecessors,
the higher Courts have been given it a wide, or liberal, meaning. The judicial approach
was succinctly summarised by Lewison LJ (giving the judgment of the Court) in
Hankinson v R & C Commissioners22s as follows (at paras 15 to 18):
“.... I begin with section 29 (1). This sub-section comes into operation if an officer of
the Board "discovers" an undercharge. The word "discovers" in this context has a
long history. Although the conditions under which a discovery assessment can be
made have been tightened in recent years following the introduction of the selfassessment regime, the meaning of the word "discovers" in this context has not
changed. In R v Commissioners for the General Purposes of the Income Tax for
Kensington [1913] 3 KB 870 Bray J said that it meant "comes to the conclusion from
the examination he makes and from any information he may choose to receive"; and
Lush J said that it was equivalent to "finds" or "satisfies himself". In Cenlon Finance
Co Ltd v Ellwood [1962] AC 782 the House of Lords considered the meaning of the
word "discovers". They rejected the argument that a discovery entailed the
ascertainment of a new fact. Viscount Simonds said:
"I can see no reason for saying that a discovery of undercharge can only arise
where a new fact has been discovered. The words are apt to include any case
in which for any reason it newly appears that the taxpayer has been
undercharged and the context supports rather than detracts from this
interpretation."
Lord Denning said:
"Mr. Shelbourne said that "discovery" means finding out something new about
the facts. It does not mean a change of mind about the law. He said that
everyone is presumed to know the law, even an inspector of taxes. I am afraid
I cannot agree with Mr. Shelbourne about this. It is a mistake to say that
everyone is presumed to know the law. The true proposition is that no one is to
21
An extract is appended at the end of this paper.
22
[2011] EWCA Civ 1566
be excused from doing his duty by pleading that he did not know the law.
Every lawyer who, in his researches in the books, finds out that he was
mistaken about the law, makes a discovery. So also does an inspector of
taxes."
In R (oao Pattullo) v HMRC Lord Bannantyne [of the Outer House of the Court of
Session] said of this part of what he called a two-stage process (§104):
"… the first preliminary part of the test is no more than an assertion by the
officer of a newly discovered insufficiency."
That section 29 (1) is dealing with the subjective views of the officer concerned is borne
out by the consequence of the making of a discovery viz. that he may make an assessment
of the amount "which ought in his … opinion" to be charged to make good the loss of tax.
It is true that this power is said to be subject to sub-sections (2) and (3). However, those
sub-sections do not refer to the officer's opinion at all.”
So if an officer takes a different view of the law to his predecessor then that was
enough.23 It is for HMRC to justify the validity of the assessment.24 Thus if the
Inspector decided that a company was a dealing company rather than an investment
company25 – that was enough. That may not be so today if the “white space” in the self
assessment return is accurately and adequately descriptive of the facts.
At all times, the validity of an assessment is a question of law and therefore, on the
facts, whether has been a “discovery”. On challenge, the HMRC officer may have to
give evidence to support his case. If the assessment refers incorrectly to a particular
provision26 then that may not be sufficient to invalidate it. It will depend whether the
inaccuracy deceived the taxpayer or he acted to his detriment as a result.
Thus the self assessment regime has brought into sharp focus the issue of how much
and what information must be shown on a tax return to achieve “finality” at the end of
the twelve month “enquiry window”27.The first case in the in the Court of Appeal to
23
Parkin v Cattell 48 Tax Cases 462.
Vickerman v Mason’s Personal Representatives 1984 Simon’s Tax Cases 231 at P.234(letter “g”) per Scott J
and Henderson J in Revenue & Customs Commissioners v Household Estate Agents 2007 EWHC 1684 (Ch) at
paragraph 44..
24
25
Jones v Mason Investments (Luton) Ltd (1966) 43 Tax Cases 570
26
Vickerman ibid
27
Section 9A,as amended, and section 28A of the 1970 Act.
test the issue was Langham v Valtema.28 That case is considered below when the “white
space” issues are addressed – ie what information is sufficient in the box provided on
the selof assessment form.
4.
How is the decision of the relevant HMRC officer, that there has been a
discovery, tested by the tribunal?
In pre-self assessment times, in Scorer v Olin Energy Systems29, Lord Keith of Kinkel
found there could be no discovery (under section 5 of the Income Tax Management Act
196430) where the material put before the Revenue officer “…was sufficient to bring
home to the mind of the ordinarily competent inspector in his position precisely…” the
wrongful claim for losses. He said further: “The situation must be viewed objectively ,
from the point of view whether the Inspector’s agreement to the relevant computation,
having regard to all the surrounding circumstances including all the material known to
be in his possession, was such as to lead a reasonable man to the conclusion that he
had decided to admit the claim…” Lord Fraser of Tullybelton, Lord Bridge of Harwich,
Lord Brightman each agreed with Lord Keith. Lord Templeman’s speech also agreed
that no discovery had been made in that case.
These are the ancestral echoes of the present conditions for validating a discovery
assessment.
The evidence of what was in the officer’s mind must be cogent given the importance of
the safeguards in section 29 under the self assessment regime31.It is a process now
requiring reasoning on the available facts. This was not the case under the old regime.
The available facts are not those needed to convince a tribunal but enough to make out
a prima facie case reasonably requiring a response, in my view..
28
[2004] EWCA Civ 193 or [2004] Simon’s Tax Cases 544
29
[1985] Simon’s Tax Cases 218 at p.223
30
See Note 15 above.
31
See the observations of Nourse LJ in Les Croupiers Casino Club v Pattinson 60 TC 196 at 222 on the
requirement that, on the balance of probabilities, the more cogent must be the evidence, the more serious the
issue.
Post self assessment, the Special Commissioners have held that a discovery is
something “newly arising, not something stale and old”: Corbally-Stourton v HMRC32.
In that case, the Special Commissioner (Charles Hellyer) said the discovery provisions
“do not require the inspector to be certain beyond all doubt that there is an
insufficiency; what is required is he comes to the conclusion on the information
available to him and the law as he understands it, that it is more likely than not that
there is an insufficiency. I shall call this a conclusion that it is probable that there is
an insufficiency” (paragraph 42).
Although this accords with the HMRC guidance in SP 1/06, in Charlton at paras [54]
to [66] per Norris J (sitting with Judge Berner) the Upper Tribunal upheld the FTT
ruling that a discovery did not require something new by way of information or law and
a “reasonable change of view” or correction of an oversight were enough to validate a
“discovery”. That something not “newly arising”33 may not be the correct test is now a
matter in due course for the Court of Appeal – it is likely that a new aspect or
understanding is enough.Again, the “white
space” entry, if any, will have to be
examined.
Thus the act of “discovery” must be reviewed, if it is challenged, by an objective
assessment of the circumstances of its making even if it is the subjective opinion of the
HMRC officer which founds the decision that there is a discovery.. The tribunal must
examine what the evidence discloses of what the HMRC officer actually knew and
considered at the time he raised the assessment The relevant document to decide
whether or not there has been a discovery is the self assessment return (not some other
form providing the information required (such as a repayment claim form R40): see
Osborne v Dickinsion34. He must have pertinent material before him upon which to
found his decision, which must be a reasonable conclusion drawn from that material
(Charlton ibid).
5. The place in the discovery assessment regime of the required circumscriptions
32
[2008] Simons Tax Cases (SCD) 907 at paragraph 44
33
See the citatation of Viscount Simonds in Cenlon Finance Co Ltd v Ellwood above.
34
[2004] SSCD 104
Curiously (in my view) in Hankinson v R & C Commissioners [2011] EWCA Civ 1566
in the Court of Appeal established that the circumscriptions (“…subject to subsections
(2) and (3) below…”) imposed by section 29(1) only need be established by HMRC
,after the assessment has been raised (i.e. at the appeal hearing).. But it must be
established by HMRC on which the burden lies. Once a prima facie case has been made
out by HMRC (for instance, that the information given in the “white space” was not
cogent) the evidential burden on the taxpayer will be considerable see Hendersonh J in
the Household Estate Agents case35 . Even so these are issues of fact and they ought to
be considered by the HMRC officer, before the assessment is made, as it is pointless to
succeed on the substantive issue and fail on the conditions required for validity of the
assessment. Such a failure (given, say, as a result, the futility of a long or complex
hearing, may have unhappy consequences in terms of costs)..
If a “discovery” is made section 29 (1) says the officer “may” make an assessment. In
analysing the HMRC obligations under section 29 , the next issue is whether or not that
decision is discretionary. It is not, in my view (as I have indicated). This may be an
argument for another day. In Hankinson, in the Court of Appeal, Lewison LJ (in
argument) considered it to be a genuine administrative discretion. I do not. Either tax is
owed or it is not. Subject to HMRC’s power to enter into contract settlements, see
Nuttall v Commissioners of Inland Revenue36 (or waive tax for genuine administrative
reasons), the tax must be collected. This, in my view, section 29 requires that an
assessment must be raised if an insufficiency is found and the conditions subsequent
met.
I support this view not just on broad constitutional grounds butr by reference to the
correct approach adumbrated by the House of Lords to interpretation of the word “may”
giving authority to an Inspector in a taxing statute, in a similar context.. In Regina v
IRC, ex parte Newfields Developments Ltd 2001 Simon’s Tax Cases 901, the issue was
whether the Inspector had to come to a decision, whether close companies were
statutorily “associated,” for the purposes of corporation tax, if certain attributions of
relationship were taken into account37. The relevant statutory provision stated: “There
35
36
Citation at Note12 above
37
[1990] Simon’s Tax Cases 194 or 63 Tax Cases 148 (Court of Appeal).
See section 416(6) of the Income and Corporation Taxes act 1970.
may be attributed to any person any rights or powers…” Lord Hoffmann explained:
“...The word appears in an impersonal construction-“there may also be attributed”and I think that its force is not facultative but conditional, as in ‘VAT may be
chargeable’. The question of whether VAT is chargeable does not depend upon
anyone’s choice but on whether the conditions for charging VAT are satisfied: are the
goods or services subject to VAT, is the trader registrable and so on. Likewise the
question of whether rights or powers should be attributed depends upon whether the
necessary conditions have been satisfied....the draftsman could not sensibly have said
‘there shall also be attributed’ because s 416(6) permits a wide range of
attributions.”38
6. What must the HMRC officer do to comply with the circumscriptions?
Once that is accepted, it is apparent that the requirements of subsections (2) and (3),
and also therefore the conditions of subsections (4) and (5), have to be addressed before
an HMRC officer can properly make a discovery assessment. These are, after all,
safeguards of significance as the Court of Appeal has emphasised..
What is the degree of cogency required? The decision, on whether these tests are met,
must be made (on my view) on the basis that there is cogent prima facie evidence of
infringement of the statutory requirements, if not on the balance of probabilities that
there is.
In Charlton v HMRC (and related appeals)
39
Norris J and Judge Berner found for the
taxpayer, who successfully appealed against an assessment issued under section 29,
which had been raised to to counteract use of a tax avoidance scheme similar to that
which had been held to be ineffective in Drummond40. The First-tier Tribunal,
distinguished Langham v Veltema, found that although there was a discovery, the
information provided on the taxpayer's return was sufficient to indicate that an artificial
tax scheme had been implemented. As a result, any officer reviewing the return should
have sought guidance from colleagues and commenced an enquiry within the enquiry
38
Paragraph 20, page 907 and see Lord Scott of Foscote at paragraphs 43, 44 at page 911.
39
[2012] UKUT 770 (TCC)
40
[2009] Simon’s Tax Cases 2206
window. The Upper Tribunal upheld this decision. The significant feature was that the
appellants had included the tax avoidance scheme reference (“DOTAS”) number
Similarly in the Lansdowne Partners Limited case, the Chancellor at [para 56] cogently
addressed the approach to be adopted:
“In the end, ,,, the appeal boils down to a very short point. The question... is whether the
hypothetical inspector having before him those three documents and the note of the
meeting held on 22nd February 2006 would have been aware of "an actual insufficiency"
in the declared profit. I would answer that question in the affirmative. He could see from
those documents:
(1) The income of LPLP consisted of management and performance fees.
(2) There had been deducted from that income what was described as
'rebates'.
(3) 'Rebates' had been paid to limited partners.
(4) Arthur Young had established that all payments to partners should be
included in gross income and were not, generally, deductible for tax purposes.
(5) There was no indication on the face of the accounts or in Mr Tai's letter to
suggest any special treatment of 'rebates' paid to limited partners either by
omission from the gross income or in their deduction therefrom.
I do not suggest that the hypothetical inspector is required to resolve points of law.
Nor need he forecast and discount what the response of the taxpayer may be. It is
enough that the information made available to him justifies the amendment to the tax
return he then seeks to make. Any disputes of fact or law can then be resolved by the
usual processes. For these reasons I would dismiss the appeal of HMRC”.
.The First-tier tribunal distinguished Charlton in Smith 41where there was a Drummondlike scheme undertaken but the return did not include a DOTAS number. Judge
Kempster held that it would be unreasonable for the officer to be aware of an
insufficiency on the basis of the information contained in the appellant's return.
Discovery assessments were also held invalid in Bhadra (t/a Admirals Locums 42 where
the First-tier Tribunal held that there had been no “discovery”, as HMRC had not
shown anything “newly arising”. to justify the assessment.
41
[2013] UKFTT368 (TC)
42
[2011] UKFTT 563 (TC)
By contrast, a discovery assessment was valid in Omar
43
where Judge Tildesley held
that the relevant entries in the appellant's returns “...were carefully crafted disclosures
seeking to pass through the initial checks carried out by HMRC but in no way meeting
the test of clearly alerting an officer of the Board to an actual insufficiency. The entries
fell far short of the requirement of a full and complete disclosure to justify an early
finality of the assessments.”
It would also seem correct that where there are substantial omissions from a return
HMRC can make further assessments under the discovery provisions even though the
main assessment is under appeal: see the old case of Duchy Maternity Ltd v Hodgson 44
7. The next issue is the significance of section 29(2) of the 1970 Act.
This is the statutory relief
from a discovery assessment if it “…was in fact made on
the basis of or in accordance with the practice generally prevailing at the time when it
was made”
Section 29(2) of the 1970 Act reads:
(2) Where—
(a) the taxpayer has made and delivered a return under [section 8 or 8A] 2 of this
Act in respect of the relevant [year of assessment] 2, and
(b) the situation mentioned in subsection (1) above is attributable to an error or
mistake in the return as to the basis on which his liability ought to have been
computed,
the taxpayer shall not be assessed under that subsection in respect of the [year of
assessment] there mentioned if the return was in fact made on the basis or in
accordance with the practice generally prevailing at the time when it was
made.(emphasis added)
The effect of section 29(2)
43
[2011] UKFTT 722 (TC),
44
[1985] STC 764.
A discovery assessment will not be effective to collect any shortfall in tax if the
insufficiency identified has arisen from completion of a tax return which was in
accordance with “the practice generally prevailing” at the time it was made.
The circumscription here, for the provision to operate, there must be an “error or
mistake” in the return which has led to a subsection (1) insufficiency. Thus if the return
required information based on an established HMRC practice (which did not reflect the
strict legal position), which the taxpayer applied -with the consequence that he was not
taxable. For instance, For over 30 years the directions and general content of the
booklet IR20 (“Residents and Non Residents: Liability to Tax”), had been treated by
both the Revenue authority and the taxpayer as gospel. It was replete with detailed extra
statutory guidance (and arguably extra statutory concessions), yet the Supreme Court
held was too opaque and indefinite for any reliance to be placed upon it by a
taxpayer,45t
8 The bbackground to section 29(2)
The proviso to section 29(2) of the 1970 Act originated from a recommendation in the
Keith Committee report.46 The aim was to crystallise in statute the practice of the
Inland Revenue at the time: that discovery assessments should not be raised where the
first assessment was made, or a decision not to make an assessment was taken, in
accordance with the practice prevailing at the time.47 The phrase “practice generally
prevailing” was not recommended as such. It was borrowed by the draftsman from
45
The fact remains that a vast number of taxpayers relied on booklet IR20 reflect the practice
of HMRC - particularly non-residents (or those who would have answered, under the pre-statutory residence
test regime, that they are not resident and not ordinarily resident in the United Kingdom). So it was
surprising that this practice did not raise a “legitimate expectation” in terms of administrative law on the
basis that was an abuse of power by HMRC if it was not followed. This was so even though passages in
IR20 were unsupported by statute; or case law and were often reflected in the guidance by HMRC in
completing the return: pace the cases of Regina (oao Davies and James and Gaines-Cooper) v HMRC
[2011] UKSC 47.
46
Command 8822: The report of the Committee on Enforcement Powers of The Revenue Departments 1983,
chaired by Lord Keith of Kinkel at Chapter 3.5 at 20/356-20/370.
47
The following extract is from paragraph 3.5.17. “It would be consistent with the Department’s policy of not
raising a discovery assessment in a situation where no new facts have come to light and the original decision
was a tenable one.” It was therefore recommended that a proviso to s 29(3) should be enacted “to the effect
that Inland Revenue are precluded from making any assessment under the subsection in the situation where
the earlier decision to make no assessment, or an assessment in a particular amount, proceeded on a view of
the law then generally received or adopted in practice, being a view which, as a matter of subsequent legal
decision or otherwise, has come to appear to be wrong, or possibly wrong”
what is now the proviso to section 33 of the 1970 Act: which governs “Error or
mistake” claims. That provision was originally introduced by section 24 of the Finance
Act 1923.48
In Rose Smith & Co Ltd v Commissioners of Inland Revenue 17 Tax Cases 586, Finlay
J held that the existence of the practice was a question of fact. The burden in terms of
section 29(2) is on the Appellant to adduce evidence of the practice and to get that
accepted by the tribunal. This was again emphasised in the Northern Irish case of Mrs
DN Evelyn [2011] UKFTT 121 (TC) where both parties were accepted the prevailing
practice of conacre lettings of agricultural grassland but the appellant misunderstood
the nature of it on the facts..
It is also important to note that in teerms of the prevailing practice exception HMRC do
not have to show a careless or deliberate action or non-disclosure where a notice to
counteract a scheme or arrangement designed to increase double taxation relief has
been issued under TIOPA 2010 s 81(2).
In Revenue & Customs Commissioners v Household Estate Agents Ltd
49
Henderson J
said at paragraph 58: “… the burden was on the Company [the taxpayer] to establish
both an operative mistake in the return and the practice generally prevailing in August
2000. Without attempting to give an exhaustive definition, it seems to me that a practice
may be so described only if it is relatively long-established, readily ascertainable by
interested parties, and accepted by HMRC and taxpayers' advisers alike” 50.
9 The circumscriptions in subsections (4) (5) of section 29 of the 1970 Act.
The operation of these provisions is authorised by subsection (3) as follows:
(3) Where the taxpayer has made and delivered a return under [section 8 or 8A of
this Act in respect of the relevant [year of assessment] 2, he shall not be assessed under
subsection (1) above—
48
The history and purpose of the section is set out in Eagerpath Ltd v Edwards 2001 Simon’s Tax Cases 26 at
paragraphs 19 (Robert Walker LJ) and 32 (Brooke LJ), and also in Monro v Revenue and Customs
Commissioners [2008] Simon’s Tax Cases 1815: Arden LJ at paragraph 6.
49
2007 EWHC 1684 (Ch),
50
There is dicta to similar effect in the decision of the Special Commissioners (Dr A N Brice and Mr John
Walters QC) in Rafferty v HMRC [2005] STC (SCD) 484 at paragraph 114
(a)
in respect of the [year of assessment] 2 mentioned in that subsection; and
(b)
…2 in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
(4) The first condition is that the situation mentioned in subsection (1) above [was
brought about carelessly or deliberately by] 6 the taxpayer or a person acting on his
behalf.
(5)
The second condition is that at the time when an officer of the Board—
(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's
return under [section 8 or 8A] 2 of this Act in respect of the relevant [year of
assessment; or
(b)
informed the taxpayer that he had completed his enquiries into that return,
the officer could not have been reasonably expected, on the basis of the information
made available to him before that time, to be aware of the situation mentioned in
subsection (1) above.
(6) For the purposes of subsection (5) above, information is made available to an
officer of the Board if—
(a) it is contained in the taxpayer's return under [section 8 or 8A] 2 of this Act in
respect of the relevant [year of assessment (the return), or in any accounts, statements
or documents accompanying the return;
(b) it is contained in any claim made as regards the relevant [year of assessment by
the taxpayer acting in the same capacity as that in which he made the return, or in any
accounts, statements or documents accompanying any such claim;
(c) it is contained in any documents, accounts or particulars which, for the purposes
of any enquiries into the return or any such claim by an officer of the Board, are
produced or furnished by the taxpayer to the officer ; or
(d) it is information the existence of which, and the relevance of which as regards
the situation mentioned in subsection (1) above—
(i) could reasonably be expected to be inferred by an officer of the Board from
information falling within paragraphs (a) to (c) above; or
(ii)
are notified in writing by the taxpayer to an officer of the Board.
(7)
In subsection (6) above—
(a) any reference to the taxpayer's return under [section 8 or 8A of this Act in
respect of the relevant [year of assessment] 2 includes—
(i)
a reference to any return of his under that section for either of the two
immediately preceding chargeable periods; and
(ii)
where the return is under section 8 and the taxpayer carries on a trade,
profession or business in partnership, a reference to [any partnership return with
respect to the partnership] 3 for the relevant [year of assessment] 2 or either of those
periods; and
(b) any reference in paragraphs (b) to (d) to the taxpayer includes a reference to a
person acting on his behalf.
[(7A) The requirement to fulfil one of the two conditions mentioned above does not
apply so far as regards any income or chargeable gains of the taxpayer in relation to
which the taxpayer has been given, after any enquiries have been completed into the
taxpayer's return, a notice under [section 81(2) of TIOPA 2010 (notice to counteract
scheme or arrangement designed to increase double taxation relief)51.
As to the role of subsections (4) and (5), the following observations of Henderson J
from R & C Commissioners v Household Estate Agents (supra) are relevant..
The judge said “…although the concept of “discovery” is carried over from the regime
which applied before self assessment, and still has the same wide meaning as before,
the circumstances in which a discovery assessment may be made are now much more
circumscribed because the conditions of sub-sections 29(4) or (5) have to be satisfied
51
Words substituted in sub-s (1), (2), (3), (5)(a), (6)(a) and (7)(a), and sub-s (10) and words in sub-s (3)(b)
repealed, by FA 1998 Sch 19 para 12 with effect in relation to accounting periods ending after 30 June 1999 (by
virtue of SI 1998/3173 art 2). Those in sub-s (7)(a)(ii) substituted by FA 2001 S 88, Sch 20 para 22 with effect
from the passing of FA 2001 in relation to returns whether made before or after the passing of FA 2001, and
whether relating to periods before or after the passing of FA 2001 Sub-s (7A) inserted by FA 2005 s 88(2), (5)
with effect in accordance with FA 2005 s 87(3)–(5). In sub-s (6)(c), words repealed by FA 2008 s 113, Sch 36
paras 65, 71 with effect from 1 April 2009 (by virtue of SI 2009/404 art 2). In sub-s (4), words substituted by
FA 2008 s 118, Sch 39 paras 1, 3 with effect from 1 April 2010 (by virtue of SI 2009/403 art 2(2)), subject to
transitional provisions in SI 2009/403 art 10(2) (where art 10 applies the appointed day is 1 April 2012). In subs (7A), words substituted by TIOPA 2010 s 374, Sch 8 paras 1, 5. TIOPA 2010 has effect for corporation tax
purposes for accounting periods ending on or after 1 April 2010, for income and capital gains tax purposes for
the tax year 2010–11 and subsequent tax years, and for petroleum revenue tax purposes for chargeable periods
beginning on or after 1 July 2010.
even if the assessment is made during the normal time-limit of six years.”
52
(the then
time limit(see below))
He was considering the provisions for Corporation Tax,53 which are similar to those in
section 29 – using identical words and phrases – and having the same purpose.
In the cases of Hancock v IRC [1999] Simon’s Tax Cases (SCD) 287(Sir Stephen
Oliver QC), Collins v HMRC (2008) Simon’s Tax Cases (SCD) 675 (Theodore Wallace
and Charles Hellier) and Kennerley v HMRC (2006)Simon’s Tax cases 188 (David
Demack) are to like effect –first, the officer of HMRC must find an insufficiency and
then consider the applicability of one, or more, of the two pre-conditions (subsections
(4) and (5)) : so too an early Hankinson case54 .
In Langham v Valtema55 the taxpayer returned the value of a house transferred to him
byb his company as a benefit in kind at the valuatrion advised to him. The Disttrict
Valuer obtained his agreement to a higher figure i9n due course. Is assertion of the
“wrong” or lower figure in his self assessment return founded a discovery assessment.
Auld LJ said there was “... no basis upon which...the Inspector ought reasonably to
have been aware of the [tax] insufficiency...”56 until the higher value was returned to
HMRC.
Thus the Valtema cogently illustrated the dilemma where a taxpayer seeks finality but
agreement with HMRC on value is outstanding at the end of the 12 month “window
period”. A guidance Note from the Revenue57 states that if the issue is addressed and
the possibility of the insufficiency is pointed out then it need not be quantified and the
taxpayer is protected from a opost 12 month “window” enquiry. If a different view of
the law and practice is taken by the taxpayer, to that of HMRC, then this must be
mentioned.
52
Paragraph 29(c)
53
Paragraph 41 et seq of Schedule 18 to the Finance Act 1988.
54
[2007] SpC 626
55
[2004] Simon’s Tax Cases 544
56
At Para 555d
57
Guidance Note 24 2009 Simon’s Tax Intelligence pages 12 to 19.
Auld LJ effectively suggested in his judgment that a taxpayer must highlight the
inadequacies of his self assessment return if he seeks finality – as if he will always
recognise them58. The Court, in due course, will have to lay down some sort of protocol
by which the taxpayer can reasonably address his doubts and difficulties without
forfeiting the prospect of finality in his tax affairs. It will be a formidable task but
Guidance Note 24 is a good start.
In Veltema and Household Estate Agents, it was made clear that the only information
which should be treated as being available to the inspector for the purposes of section
29(5) was that listed in section 29(6). But the tailpiece of section 29(6) speaks of what
it would have been reasonable to expect the officer objectively to have been aware of
on the basis of that information. In determining what it is reasonable to expect of an
officer some knowledge must be attributed to him: he must have some awareness of the
rules of elementary arithmetic, some knowledge of tax law, and some general
knowledge. All of those he must be treated as applying in determining what it is
reasonable to expect of him59.
The reference in subsection (5) to an officer is to a hypothetical officer was established
by Auld LJ in Valtema where he described the relevant issue as being (para 11)
"whether, as the Inspector contends, only awareness or an inference by him of
an actual insufficiency in the self-assessment, though not necessarily its
precise extent, would have disentitled him from making a discovery
assessment under section 29(5), or whether, as Mr. Veltema contends, an
awareness or inference by the Inspector of circumstances suggesting a
possible insufficiency and the need for some basic check did so;"
His conclusion is (paras 32 and 33) where he said:
". If, as here, the taxpayer has made an inaccurate self-assessment, but
without any fraud or negligence on his part, it seems to me that it would
frustrate the scheme's aims of simplicity and early finality of assessment to
tax, to interpret section 29(5) so as to introduce an obligation on tax
inspectors to conduct an intermediate and possibly time consuming scrutiny,
whether or not in the form of an enquiry under section 9A, of self-assessment
returns when they do not disclose insufficiency, but only circumstances further
investigation of which might or might not show it…..
The difficulties wityh Auld LJ’s demand for such “frank” reporting were addressed by Judge Hellier in
Corbally Stourton V HMRC [2008] SpC 692.
58
59
See Corbally Stou8rton at para 58
More particularly, it is plain from the wording of the statutory test in section
29(5) that it is concerned, not with what an Inspector could reasonably have
been expected to do, but with what he could have been reasonably expected to
be aware of. It speaks of an Inspector's objective awareness, from the
information made available to him by the taxpayer, of "the situation"
mentioned in section 29(1), namely an actual insufficiency in the assessment,
not an objective awareness that he should do something to check whether
there is such an insufficiency, as suggested by Park J. If he is uneasy about the
sufficiency of the assessment, he can exercise his power of enquiry under
section 9A and is given plenty of time in which to complete it before the
discovery provisions of section 29 take effect."
In Lansdowne the Chancellor (Morritt) in the Court of Appeal said at para 56 (see
above) made similar observations.:
It is assumed that HMRC will have allocated the correct an officer of the correct
u8ndeerstanding skill and experience to the particular self assessment being examined. The
reference to a DOTAS number5 is sufficient.60 The FTT’s Decision in Sanderson61 on facts
similar to Charlton must be treated as per incuriam. There the tribunal (judge Brooks)
dismissed the appeal (even though the taxpayer had not been negligent) he could not treat
“...the making of a non existent telephone call from an hypothetical officer to a specialist as
a sufficient basis for the attribution of the knowledge of the relevant specialist ...to the
hypothetical officer”
Now it seems (to me,at least) that the simple test in subsection (5) has taken on a Byzantine
complexity as a result of elaborate judicial analysis. This is the means by which the judges try
to protect the procedural machinery of self assessment from disingenuous challenges.
10. The purpose and effect of subsections (8) and (9):
These provide for appeals and the mechanics of application of the provision.
They say:
(8)
An objection to the making of an assessment under this section on the ground that
neither of the two conditions mentioned above is fulfilled shall not be made otherwise
than on an appeal against the assessment.62
(9)
Any reference in this section to the relevant [year of assessment] is a reference to—
60
See Charlton supra in the Upper Tribunal.
61
[2012]UKFTT 207(TC)
62
Eke v Knight [1977] Simon’s Tax Cases 19
(a)
in the case of the situation mentioned in paragraph (a) or (b) of subsection (1) above,
the [year of assessment] mentioned in that subsection; and
(b)
in the case of the situation mentioned in paragraph (c) of that subsection, the [year of
assessment] in respect of which the claim was made.
In terms of subsection (8), Lewison LJ in Hankinson said63, as part of the reasoning, that it
presupposes that there is an assessment against which an appeal can be mounted; it follows,
said the judge, that the conditions in subsections (4) and (5) are not required to be satisfied
before the HMRC officer makes of the assessment.
The result is that for the first time in 200 years or so, the revenue authority may make an
assessment lawfully which is inherently invalid. Before self assessment, invalid assessments
could be ignored as mere pieces of paper (probably unwise); challenged by way of judicial
review or challenged as a preliminary issue as invalid at the substantive appeal hearing. The
point may appear as ultra technical but it does illustrate that the modern discovery assessment
is substantively a different beast from that of earlier times – where every assessment was
either valid or invalid ab initio not liable, upon correct challenge, to be held invalid by the
appeal tribunal – remembering always that an assessment (once proper procedures for notice
etc have been undertaken) creates an enforceable debt to the Crown. As Wandsworth Council
v Winder64 demonstrates, a defence (in enforcement proceedings) may be available that the
assessment is invalid even though the substantive proceedings appear to have been
completed65. It is a complex point, though, and the answer may be that the Wandsworth
principle cannot apply if the possibility of inherent invalidity is recognised by the statutory
scheme.
11. Time limits
63
[2011] EWCA Civ 1566 at para [26].
64
[1965] Appeal Cases 461. The point being that rent increases could not be enforced once the tenant showed,
as a defence, that the Council’s resolutions, to increase the rent, were ultra vires. It was not necessary to invoke
judicial review in order to establish the point.
.65 The significance of Wandsworth v Winder, in the tax appeal process, was considered obiter in Revenue and
Customs Commissioners v Hok Ltd [2013] UKUT 363 at para [51] by Warren J and Judge Bishopp.
From 1 April 2010 an assessment to income tax or capital gains tax can normally be made at
any time up to four years after the end of the tax year concerned 66.If there a “careless” return,
the time limit for making an assessment is six years after the end of the year of assessment to
which it relates. For “deliberate” behaviour, the time limit is 20 years after the end of the year
of assessment to which it relates67.
Prior to April 2010, the time limit for making an assessment to income tax or capital gains tax
was five years from the 31 January following the year of assessment. The time limit for
raising a discovery assessment where there has been fraudulent or negligent conduct was 20
years after 31 January following the end of the year of assessment concerned68.
In terms of
partnerships for any year for which an assessment is made under these
provisions, the same time limit applies to the making of an assessment in respect of
partnership profits on any other person who was a partner in that year69.For companies, with
effect from 1 April 2010, an assessment to corporation tax can generally be made at any time
up to four years after the end of the accounting period concerned. Where there has been a loss
of tax brought about carelessly or deliberately, this time limit is extended. Where the
behaviour giving rise to the situation is treated as careless, the time limit for making an
assessment is six years after the end of the accounting period. For deliberate behaviour, the
time limit is 20 years after the end of the accounting period to which it relates70.
Prior to 1 April 2010, an assessment to corporation tax could be made at any time up to six
years after the end of the accounting period concerned. Where there has been fraudulent or
negligent conduct, the time limit is extended to 21 years after the end of the accounting
period concerned.
For those who have died, the position is that with effect from 1 April 2010, an assessment on
the personal representatives must be made not more than four years after the end of the year
66
TMA 1970 s 34(1) as substituted by FA 2008 Sch 39 para 7 by virtue of SI 2009/403.
67
TMA 1970 s 36(1), (1A) as substituted by FA 2008 Sch 39 para 9 by virtue of SI 2009/403.
68
TMA 1970 s 34(1) and 36 (1) before substitution by FA 2008 Sch 39 paras 7 and 9 by virtue of SI 2009/403.
69
TMA 1970,s.36(2)
70
FA 1998 Sch 18 para 46(1), (2) (2A) as substituted by FA 2008 Sch 39 para 42: by virtue of SI 2009/403.
of assessment in which death occurred. This time limit remains unchanged where careless or
deliberate behaviour is involved71.
Prior to 1 April 2010 an assessment on the personal representatives of a person who has died
could be made within three years of 31 January following the year in which death occurred.
Even where fraud or negligence was involved, an assessment could only be made for a year
ended not more than six years before the date of death.
An assessment to re-claim an over-repayment where a discovery is made and too much tax
has been repaid as a result of incorrect information supplied by the taxpayer (ie carelessly or
deliberately, from 1 April 2010, or fraudulently or negligently prior to that date), an
assessment may be raised under section 29 of the 1970 Act subject to the extended time
limits (see above). Where a discovery is made but the taxpayer is not deemed to have been
careless etc, the time limits that apply to the issue of an assessment are the normal time
limits.
Two further important points: HMRC do not owe any general duty to the taxpayer to raise
assessments promptly, and an assessment raised within the statutory time limit is not
invalidated by any delay by the tax authorities. In Ferrazzini v Italy, the European
Commission for Human Rights court (“ECHR”) held that several factors combined to place
tax disputes outside the scope of civil rights and obligations, so that there was no breach of
the Convention for the Protection of Fundamental Rights and Freedoms 1950 art 6(1) in
relation to tax proceedings the length of which were considered by the appellant to exceed a
“reasonable time”.
An objection to the making of an assessment on the grounds that the time limit has expired
can only be made by way of appeal against such an assessment7. In Morritt Properties
(International) Ltd v R & C Commissioners an assessment to recapture exessive group relief
was appealed on the ground the time limit had been exceeded. The FTT dismissed the appeal
on the basis that it had been made within the six-year time frame that applied prior to 1 April
2010. An assessment is made when an HMRC officer decides to make it and calculates the
assessed amount. HMRC's recording of the assessment is a consequential process that is
purely administrative: Burford v Durkin 72c.f. Honig v Sarsfield73 .
71
TMA 1970 s 40(1), (2) after substitution by FA 2008 Sch 39 para 11 by virtue of SI 2009/403.
72
[1989] Simon’s Tax Cases 845 CA
Appendix
12. Tables showing the time limits.
The normal time limits for assessments are summarised in the tables below along with the
comparative time limits applicable before 1 April 2010. Time limits run from the end of the
taxable period concerned, except where indicated.
Ordinary assessing time limits
Tax
Time limit from 1 April 2010
Time limit before 1 April 2010
IT/CGT
4 years
5 years 10 months
CT
4 years
6 years
Miscellaneous
Tax
Assessment type
Time limit from 1
Time limit
April 2010
before 1 April
2010
IT/CT
HMRC determination following failure 3 years*
5 years*
to make a return
IT/CT
Taxpayer's self-assessment to supersede 3 years*
5 years*
determination above
IT
Assessment on the executors of a
4 years
deceased person
IT
Right to make a return
3 years 10
months
3 years 6 months
5 years 6
months
CT
Assessment following repayment of
PRT
*
**
73
from the fixed filing date
from the end of the relevant calendar year
[1986] Simon’s Tax Cases 246, CA.
4 years**
6 years**
The tables below show the time limits for raising assessments both where the loss of tax arose
as a result of carelessness and where the understatement was deliberate.
Carelessness
Tax
Time limit from 1 April 2010 Time limit before 1 April
2010
Income tax
6 years
20 years 10 months
Capital gains tax
6 years
20 years 10 months
Corporation tax
6 years
21 years
Deliberate understatement
Tax
Time limit from 1 April 2010 Time limit before 1 April
2010
Income tax
20 years
20 years 10 months
Capital gains tax
20 years
20 years 10 months
Corporation tax
20 years
21 years