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HMRC discovery assessment found to be "stale"

The Upper Tribunal has allowed a taxpayer’s appeal against a discovery assessment issued by HMRC. What are the details?

Case facts. In Beagles v HMRC, the taxpayer, Mr Beagles (B) had taken part in a tax avoidance scheme designed to create a tax loss. HMRC opened enquiries into the other participants’ tax returns within the relevant time limit, but failed to raise one for B. HMRC became aware of this by 30 June 2004 but the officer responsible for the case decided not to raise a discovery assessment, preferring to wait for the outcome of similar cases. HMRC finally issued a discovery assessment to B on 15 January 2008. B appealed on the grounds that the discovery assessment was invalid because it had become stale by the time it was issued.

Decision. The Upper Tribunal (UT) confirmed that for a discovery to take place, the relevant officer must come to a conclusion or have “found out” from the evidence before him that there is an insufficiency in the return. It agreed that the officer had made a discovery of the insufficiency in B's return at the very latest by 1 August 2005. By that date, by his own submission, the officer was of the view that the scheme did not operate to create a loss.  He had “found out” that there was an amount that was omitted from the return following advice from leading counsel. The UT then considered whether the discovery was ‘new’ at that stage and noted that almost two and a half years is a material, lengthy delay. The UT held that the discovery had lost its quality of newness by the time of the issue of the assessment and so the assessment was not valid.

Tip. This case highlights the importance of considering whether assessments raised by HMRC are valid as part of the appeals process.

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