< Go Back Discovery Assessments, Enquiry Windows and Real Time Information Posted: Aug 4, 2021
When HMRC discovers a taxpayer has paid
insufficient tax, it can make a discovery assessment (s.29 TMA 1970 to
recover unpaid tax. The power to do so is limited in situations, where HMRC could, and should, have recovered tax using
routine self assessment methods.
If the window for opening an enquiry has closed with no enquiry made, HMRC can’t raise an assessment to recover tax
unless one of two conditions is satisfied:
The error was brought about carelessly or deliberately by the taxpayer (or someone acting on his behalf) (TMA 1970 s 29(4)); or An 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 (TMA 1970 s29(5)).
Langham v Veltema and HMRC's Statement of Practice 1/2006 and subsequent cases have placed the emphasis on s.29 TMA 1970, which restricts the information to:
What is made available to the officer by the taxpayer (whether in his return, or accompanying it, or separately in writing), or What might “reasonably be expected to be inferred” from information which was provided by the taxpayer (s29(6)(d)(i) MA 1970).
However, those principles were established long before RTI and HMRC's resultant pre-population of tax returns. HMRC receives considerable amounts of detailed information from employers which
should enable officers to identify errors in returns long before the enquiry window closes. Two recent cases, heard by two different First Tier Tribunals (FTT) reveal the matter isn't closed..
Nicholas Scoggins [2021 UKFTT 159 TC08128) n 2016/16 Scoggins received tacxable commutations from two pension prioviders and both deducted PAYE and provided form P45 to Scoggins. Scoggins’ 2015/16 tax return had his employment income and PAYE tax
pre-populated by HMRC; the pension commutations had not been
included as the system for doing so was behind schedule, Scoggins left the relevant sections blank. In the absence of any
indication that there was income from those sources, HMRC did not enquire into the return.
In September 2017 Scoggins submitted an amended 2015/16 tax return
increasing his claim to business expenses. The amended return still
omitted any information regarding the pension commutations. Interestingly, when Scoggins submitted his 2016/17 return, HMRC’s computer had
pre-populated the pension commutations as potential sources of income.
In March 2018, an HMRC officer reviewed Scoggins’ returns, and
concluded there were errors and omissions which led to an insufficiency
of tax. While he was able to open a s.9A TMA 1970 enquiry into the
amended return (insofar to business expenses), he was unable to enquire into the return genarally. A discovery assessment
was issued in November 2018, and was duly
The FTT accepted that the P45s had been submitted by the
pension companies and HMRC did hold them on its NPS system; therefore, an officer
could, in principle, have checked that system at the time of receiving
the return and immediately been aware of the tax shortfall. However, nothing in the return
as submitted by Scoggins (or
in the subsequent amendment) would have alerted an officer of the need
to make such a check. The matter would have been different if
Scoggins had mentioned pension income in his return. Then an NPS check
by the officer might “reasonably be expected to be inferred…” in
accordance with s.29(6)(d)(i) TMA 1970.
The judge ruled that, at the time the enquiry window closed, HMRC could
not have been reasonably expected to be aware of the situation based upon information provided by Scoggins. His appeal was dismissed, and the assessment was confirmed as valid. Alan Loughrey UKFTT 0252 TC08198
Loughrey was made redundant in November 2013, and received a
termination payment from which tax was deducted. Believing he had paid
too much tax, Laughrey voluntarily submitted a 2013/14 tax return in
March 2016. Loughrey reviewed HMRC’s website and decided he could deduct £30,000
from a termination payment. His redundancy agreement mentioned
that £30,000 of his total payment would be tax-free. Loughrey took the
“taxable pay to date” figure from his P45 (£120,040) and deducted
£30,000. Upon receiving his return, HMRC operated its usual “process now, check later” approach and refunded him tax of £14,043.
Unfortunately, the taxable pay shown on the P45 was already net
of the £30,000 exemption. This came to light in 2018, by which
time the enquiry window had closed. The HMRC
officer, when allocated Loughrey’s file, reviewed the RTI record
relating to Loughrey’s pay. HMRC conceded in a letter to Loughrey that “HMRC can see why you
were not aware that the £30,000 exemption had already been deducted by
Symantec (UK) Limited and... HMRC were not going to charge a penalty for
the inaccuracies in your return”. That did not mean that HMRC was going to forgive the over-refunded
tax. A discovery assessment was issued in April 2018, and was appealed.
HMRC argued that Loughrey had been careless, and its decision
to charge no penalty had been an exercise of discretion. The judge
disagreed: “he looked at the online guidance, and he did what the
guidance told him to do… we believe that HMRC in reality knew that Mr
Loughrey was not careless, and they said as much in… the review
letter, and we believe that is why HMRC did not seek to levy a
The judge also disagreed with HMRC on the information question, as:
Loughrey clearly declared that he had PAYE income on his tax return; It was HMRC’s own computer which identified the discrepancy; and HMRC reviewed the RTI data when checking Loughrey’s tax return.
In this context, RTI information about a source of income the taxpayer
disclosed was not something that HMRC was “required to search through
their vaults to find”. If a taxpayer tells HMRC he has employment
income, HMRC can “reasonably be expected” to infer that RTI data it
held was available to check the accuracy of the return. The appeal was allowed, and the assessment was invalid.
RTI provides HMRC with a considerable amount of information on employed taxpayers. The
Loughrey case (and, by implication, Scoggins) suggests that HMRC might be obliged to consider that information within the enquiry window. The “Process now, check later” approach appears less viable if HMRC already has the necessary information immediately avaiilable.
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