An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth

20 September 2021

This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth [2021] UKSC 17.  The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.

The facts

Mr Tooth entered into a tax scheme designed to create an employment-related loss. Although the arrangement ended up being ineffective, this was not certain at the time, so Mr Tooth incorporated the loss into his 2007/08 tax return. However, as the software used to complete his tax return was not working correctly, he had to use a box meant for partnerships instead of employment, explaining that in the corresponding “white space”.

In August 2009, HMRC attempted to open an enquiry using their powers under Schedule 1A TMA1970 to examine Mr Tooth’s “claim outside a return” (as HMRC saw it), however following the Court’s decision in Cotter v HMRC [2013] UKSC 6 the correct mechanism was under s9A TMA1970 and HMRC were left without a validly open enquiry. Therefore, in October 2014, HMRC gave notice to Mr Tooth of a discovery assessment. HMRC argued that they had discovered an insufficiency in Mr Tooth’s return and that the return contained a deliberate inaccuracy.

“Deliberate inaccuracy”

The standard time limit for a discovery assessment is four years, but it is extended to 20 years if the insufficiency is brought about deliberately. HMRC argued that (1) this included cases where the statement containing the inaccuracy was deliberately made and (2) that to determine whether there was an inaccuracy, the statement containing the inaccuracy should be read independently and without regard to the rest of the tax return.

The Court rejected both arguments and held that the natural meaning of “deliberate inaccuracy” was a statement which, when made, was deliberately inaccurate and which intended to mislead HMRC. The Court also considered a point that has concerned many practitioners since the Court of Appeal judgment: that on HMRC’s interpretation, taxpayers could be exposed to the 20-year time limit to raise a discovery assessment “by making an honest but in fact inaccurate statement” and would be exposed to greater financial penalties for any loss of tax. This was another factor in the Court concluding HMRC’s interpretation was incorrect.  A slight note of caution is found in paragraph 47 of the judgment, in which the Court said that “for there to be a deliberate inaccuracy”, HMRC would have to prove “an intention to mislead” by the taxpayer, or “perhaps (…) recklessness as to whether it [the inaccuracy] would do so”, potentially widening the scope of a “deliberate inaccuracy”.

Secondly, the Court held that there were no inaccuracies in Mr Tooth’s tax return. Although he used the “wrong” partnership box to include his employment loss, he explained why he did so in the “white space” of the tax return which is part of the document. HMRC had argued that their computers would read each box individually without considering other parts of the return. The Supreme Court rejected this argument as “very unattractive” and held that whether there was an inaccuracy in the document depended upon reading each section in the context of the whole return. When read as a whole there was no inaccuracy in Mr Tooth’s tax return due to his full and frank white space disclosure.


This decision also finally concludes the question which has consumed the lower courts for much of the past decade: can a discovery become “stale”. In 2012, in Charlton v HMRC [2013] STC 866, the Upper Tribunal held that if an HMRC officer concluded that a discovery assessment should be issued, an assessment might become stale if not made within a reasonable period. HMRC has never accepted the concept of “staleness” and there have been a significant number of (sometimes conflicting) judgments on this topic.

The Court rejected the concept of “staleness” entirely, holding that it was incompatible with the statutory scheme and that the only time limits were those set out in statute. This means that even if an HMRC officer found an error, went on holiday, and forgot to issue an assessment, another officer could issue an assessment years later (assuming, of course, that they were still within the statutory time limits).

HMRC can sometimes be quick to assert that a taxpayer has been careless and thus opening the possibility of the application of the longer six-year time limit for the issuing of a discovery assessment in place of the standard four years. The Court has reasserted that the threshold for conduct to be considered deliberate is a very high bar for HMRC to reach.  This should therefore reserve the 20-year assessment time limit for only the most serious cases.

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