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Adam Craggs

Partner, Reynolds Porter Chamberlain LLP

Quotation Marks
It will come as a relief to many that the Supreme Court confirmed that, for the purposes of s.29, ‘deliberate’ conduct requires an ‘intention to mislead’

Tooth and claw?: The meaning of words in tax assessments

Tooth and claw?: The meaning of words in tax assessments


Adam Craggs and Constantine Christofi explore how the Supreme Court rejected the concept of 'staleness' but confirmed the meaning of 'deliberate'

The concept of 'staleness' in the context of discovery assessments (assessments issued to taxpayers by HMRC outside of any statutory enquiry), gathered momentum following the Upper Tribunal’s decision in Charlton and others v HMRC [2011] UKFTT 467 (TC). As 'discovery' is only relevant to returns and tax years where HMRC has not opened a statutory enquiry, many commentators considered that the concept provided a degree of procedural fairness in the discovery assessment process, and that HMRC should not be permitted to delay issuing an assessment for a considerable period of time after making a discovery. As recently as February of this year, Judge Malek in the First-tier Tribunal (FTT) in Mehrban v HMRC [2021] UKFTT 53 (TC), noted that it was an “absurdity” to say that the concept of staleness does not exist.

However, in HMRC v Tooth [2021] UKSC 17, the Supreme Court, in dismissing HMRC's appeal, confirmed that a discovery assessment issued under s.29 of the Taxes Management Act 1970 (TMA) will not be invalid simply because a lengthy period of time has elapsed between the discovery being made and the assessment being issued by HMRC. The Supreme Court, in disagreeing with the Court of Appeal, also confirmed that, for a taxpayer to bring about a loss of tax as a result of a 'deliberate' inaccuracy in a document, there must be an intention on the part of the taxpayer to mislead.


The taxpayer, Mr Tooth, filed a self-assessment return in 2009, in respect of income tax for the tax year 2007/08, which included a loss, generated by way of a tax avoidance arrangement. At the end of 2013, with the assistance of retrospective legislation, it was established that the arrangement was ineffective. HMRC thought it had protected its position in relation to Mr Tooth by opening an enquiry, but it had in fact opened the enquiry under the incorrect legislative provision (Schedule 1A rather than s.9A TMA) and there was no valid enquiry. HMRC therefore issued a discovery assessment in October 2014 under s.29, TMA (the Discovery Assessment), claiming that the insufficiency in Mr Tooth’s self-assessment had been brought about deliberately. By alleging deliberate conduct, HMRC was able to rely on the 20-year limitation period within which it can issue a discovery assessment.

HMRC argued that Mr Tooth's online tax return contained a deliberate inaccuracy, because a loss which (under the arrangement) was designed to be an employment-related loss incurred in the following year of assessment and then carried back, was wrongly inserted in a box on the electronic return reserved for partnership losses. This loss found its way by deduction into the electronic calculation of the self-assessment tax liability – and created the insufficiency. The return was completed in this way because of the technical limitations of the HMRC-approved software which was used to complete Mr Tooth's return. Full explanations for the way the form had been completed – and why, including an explanation that the loss arose pursuant to a tax avoidance arrangement, were included in the 'white space' on the form.

Mr Tooth appealed the Discovery Assessment to the FTT.

Decisions, decisions…

In the FTT, Mr Tooth put HMRC to proof that there had been the requisite discovery and denied that his return contained an inaccuracy. HMRC argued that the discovery had been made by its officer in October 2014. The FTT accepted HMRC's case on discovery, but agreed with Mr Tooth that there had been no deliberate inaccuracy in his return. Mr Tooth's appeal was therefore allowed.

HMRC appealed to the Upper Tribunal (UT). The UT found that there had been no discovery in 2014, mainly because HMRC had formed its own view about the insufficiency in Mr Tooth’s return in 2009, and a discovery made in 2009, even if it had been pleaded, would have become 'stale' by October 2014, when the Discovery Assessment was issued. The UT also held that there had been no inaccuracy in Mr Tooth’s return, read as a whole, and that even if there was an inaccuracy, any such inaccuracy had not been deliberate.

HMRC appealed to the Court of Appeal. The Court of Appeal agreed with the UT on the absence of a qualifying discovery but concluded, by a majority, that there had been a deliberate inaccuracy in Mr Tooth’s return. Due to the Court's conclusion on the first point, HMRC's appeal was dismissed.

HMRC appealed to the Supreme Court.

The Supreme Court judgment

HMRC argued that there was a valid discovery – and sought to uphold the judgment of the majority in the Court of Appeal, that there was a deliberate inaccuracy in Mr Tooth’s return. Mr Tooth contended that the conclusion arrived at by the FTT and the UT, that there was no deliberate inaccuracy in his return, was correct.

The Supreme Court unanimously held that Mr Tooth's return did not contain an inaccuracy. The Court said that, even if the return had contained an inaccuracy as contended by HMRC, it would not have been satisfied that it was deliberate "in the sense … that Mr Tooth or his advisors knew that the relevant statements were inaccurate and intended thereby to mislead the Revenue". On this basis, HMRC's appeal was dismissed.

The Court also rejected the concept of 'staleness' in connection with discovery assessments, deciding that there is no place for the idea that a discovery which qualifies as such should cease to do so, simply because of the passage of time. The Court was of the view that to import such a notion of staleness would conflict with the statutory scheme, which sets out a series of limitation periods (in s.34 TMA onwards, i.e. the four year time limit, extended to six and 20 years in the case of carelessness and deliberate conduct, respectively) for the making of assessments to tax. Each of the relevant provisions provide that an assessment ‘may be made at any time’ up to the stated time limit.


The Court's rejection of the concept of 'staleness' will come as a disappointment to many taxpayers. What this means in practice is that, so long as an HMRC officer has made a 'discovery', the fact that HMRC then 'sit' on the discovery will not prevent it from issuing a valid assessment at a later point in time provided the assessment is issued within the relevant statutory time limits – and the statutory safeguards in s.29 TMA, are not applicable. The Court did acknowledge that a taxpayer may seek relief by way of judicial review proceedings if HMRC fails to act in accordance with ordinary principles of public law, in deciding when to issue an assessment under s.29. The Court also confirmed that an HMRC officer may make a discovery, even if a different HMRC officer made the same discovery earlier, and there are no new facts.

It will come as a relief to many that the Supreme Court confirmed that, for the purposes of s.29, ‘deliberate’ conduct requires an ‘intention to mislead’ (or, possibly, recklessness). The decision of the Court of Appeal to deviate from the position as it had previously been understood, resulted in the extraordinary position of it being easier for HMRC to establish deliberate conduct (securing a 20 year window for issuing an assessment) than careless conduct (securing a six year window).

It is always important to bear in mind the important safeguards contained in s.29 when HMRC issue a discovery assessment. In the recent case of Ball Europe Ltd v HMRC [2021] UKFTT 23 (TC), the FTT held that the presence of certain amounts in a taxpayer’s accounts, but not in its tax return, was sufficient for a ‘hypothetical officer’ of HMRC reasonably to be expected to be aware of a tax insufficiency – and this prevented HMRC from issuing a valid discovery assessment. The knowledge to be attributed to a hypothetical officer has always been a difficult issue – because the FTT, when considering this test, cannot take account of the actual knowledge of a specific HMRC officer, but has to look generically at what a non-existent officer might be expected to know. Historically, the FTT has been extremely generous to HMRC when applying the hypothetical officer test, but this decision highlights just how important that safeguard is.

HMRC is committed to a review of TMA 1970 and the administration of the tax system generally. Hopefully, the question of where the balance is to be struck between the ability of HMRC to raise discovery assessments on the one hand, and the right to certainty and finality for taxpayers on the other, will be at the forefront of its mind – and given proper consideration.

Adam Craggs is head of RPC’s Tax Disputes Resolution team. He has more than 30 years’ experience of litigating tax disputes and is an accredited mediator. Before joining RPC, he worked at HMRC's Solicitor's Office. Constantine Christofi is a senior associate in RPC's Tax Disputes Resolution team. He specialises in managing complex tax enquiries and litigation before the tax tribunals and higher courts: