An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth
This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth  UKSC 17. The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.
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  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.
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  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.
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Tax-Related Measures in the Autumn Statement 2022
On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This note focuses on tax measures included as part of that statement.
Offshore Structures and Onward Gifts
The so-called “onward gift” tax anti-avoidance rules were introduced by the Finance Act 2018 to complement the changes brought in the previous year aimed at restricting the UK tax privileges afforded to non-UK domiciled individuals. The rules were designed to close some perceived loopholes in relation to the taxation of non-UK resident structures (including but not limited to non-UK trusts). With effect from 6 April 2018, it would no longer be possible for an individual to receive a gift without questioning its providence, particularly where family trusts are involved.
The rules were designed to prevent non-UK structures from using non-chargeable beneficiaries as conduits through which to pass payments in order to avoid tax charges. Gone are the days of “washing out” any trust gains that could be matched to offshore income or gains by prefacing a payment to a UK-resident taxable beneficiary with a non-taxable primary payment to a non-UK resident beneficiary.
“It is notoriously challenging to prove a negative (especially to HMRC) and even more tricky where the taxpayer must speak to someone’s intention other than their own.”
Note that the new rules will apply where funds are received from non-UK resident structures before 6 April 2018 to the extent that they are subsequently gifted after that date.
Increased Investment in Personal Tax Compliance in the UK
Changes in public opinion, advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. In addition, the Russian invasion of Ukraine and the corresponding economic fallout have prompted governments to increase transparency in relation to investments by wealthy foreign individuals in their countries.
The UK’s HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work.
It should therefore be well placed to take advantage of new international efforts to increase tax compliance, particularly against the backdrop of the already extensive network of bilateral tax treaties in the UK, and not forgetting that the UK was a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC)
As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, taxpayers need to be vigilant about evidential requirements that HMRC must fulfil in order to discharge their burden of proof. Read JHA’s latest insight into the First-tier Tribunal’s decision in Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC).
If you require any further information about the Kittel, Mecsek, and Ablessio principles, or any other allegations by HMRC of fraud or fraudulent abuse, please contact Iain MacWhannell (email@example.com).