< Go Back HMRC Delay scuppers Taxman's ability to make a 'Discovery' Assessment Posted: Jun 11, 2019In the recent decision in Hargreaves v HMRC [2019] TC07090 HMRC's long delay in raising an assessment on an very large Capital Gain resulted in no 'Discovery' being made at the point of assessment and so it was invalid.
Mr Hargreaves the former chairman of Matalan plc suggested he had moved abroad in early 2000. He later disposed of his shares after 'leaving' but failed to 'leave' in the context of his UK tax residence. His self assessment return was filed on the basis that he was non-resident and so he did not
disclose the substantial Capital Gain. HMRC opened an enquiry into his 2001-02 return and decided he was non resident for that year and assessed �6million in tax. HMRC did not raise an assessment for the estimated 2000/01 �84million Capital Gains tax until 2007. Although the appellant initially argued that he was non-resident, he later claimed that the statutory conditions required for an Inspector to raise a 'Discovery Assessment' were not met.
The First Tier Tax Tribunal considered:
Whether there was a 'Discovery' (s 29(1) TMA 1970) and if that was the case, whether it had become 'stale'; Whether any loss of tax was the result of negligent conduct
(s 29(4) TMA 1970) by Hargreaves or by someone acting for him, in this case his agents Whether 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 insufficiency of tax (s 29(5)TMA); and Whether the return was made on the basis or in accordance with the
practice generally prevailing at the time when it was made (s 29(2) TMA) The Tribunal found:
There was an period in excess of three years between HMRC making the discovery that
the taxpayer was non resident and raising an assessment. Importantly the Tribunal found that a discovery
cannot be remade, therefore the discovery had lost its quality of newness and
was stale by the time the assessment was eventually made. The assessment could not stand.
Having found the above, the matter of the remaining cvonditions required for a discovery became immaterial, although all were found in HMRC's favour:
In failing to take reasonable steps to review and consider his position before filing the relevant the
conduct of Mr Hargreaves (or his advisers) amounted to
carelessness. There was no reference to any Capital Gain on Mr Hargreaves�s
2000-01 return. Thus, any hypothetical officer could not have been
reasonably expected to be aware of an actual insufficiency arising as a
result of the disposal by Mr Hargreaves of his Matalan shares on the
basis of the information provided on the return or the form P85
submitted. Mr Hargreaves�s return was not made on the basis or in accordance
with the practice generally prevailing at the time it was made. Summary
It now seems clear that, on this basis, HMRC must make timely decisions in respect of cases reliant on discovery provisions and delay could lead to the initial 'Discovery' becoming aged, stale and then eventually ineffective. Other cases on discovery and staleness recently went on appeal to Court of
Appeal.
From April 2019. the time limits for
discovery assessment in cases involving offshore matters has been extended to 12 years in normal cases.
Taking on the might of a large organisation like HMRC can be
daunting but sometimes it is the right thing to do, and sometimes a case may turn on the smallest or most unlikely detail; if you're having
trouble with the taxman, contact us in complete confidence.
******UPDATE - SEE SUPREME COURT DECISION in TOOTH - MAY 2021*******
