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Supreme Court judgment in Tooth

Supreme Court judgment in Tooth


The Supreme Court has released its judgment in Tooth, an important case with implications for the law on discovery assessments.

Discovery assessments are a significant HMRC power, allowing HMRC to recover underpaid tax after the enquiry window for a tax return (normally one year) has expired. HMRC can issue a discovery assessment if an officer of HMRC 'discovers' that an additional amount of tax is due. The timeframe for issuing a discovery assessment is generally four years from the end of the tax year to which it relates (extended to six years if the taxpayer has been careless, or 20 years in respect of certain deliberate behaviour).

Prior to the Supreme Court's decision in Tooth, the concept of 'staleness' had been developed through a series of decisions in lower courts and tribunals. The word 'discover' was interpreted as something that 'newly arises', with the effect that if HMRC did not act sufficiently promptly after an officer newly discovered an insufficiency of tax, the discovery could become 'stale'. As a result, any subsequent discovery assessment would be invalid, even if it was made within the statutory time limits. As the concept is not expressly set out in legislation, HMRC take the view that it does not exist and have forcefully challenged staleness arguments in the courts.

The Supreme Court has now held unanimously that, contrary to earlier case law, there is in fact no concept of staleness in relation to discovery assessments. The Court held that there is "no place for the idea that a discovery which qualifies as such should cease to do so by the passage of time". Although the case was ultimately decided in favour of the taxpayer on other grounds (that his tax return did not contain a deliberate inaccuracy, meaning that the relevant discovery assessment was out of time), the judgment on the staleness point is nevertheless a significant victory for HMRC, affirming their long-held position.

The Supreme Court also confirmed that the question of whether or not there is a 'discovery' turns on the state of mind of the particular officer at HMRC who is reviewing the case, not HMRC's 'collective knowledge'. This means that an officer can make a discovery even if another officer had already made the same discovery previously, and either officer could raise an assessment on the basis of such discovery provided the statutory conditions are met.

What this means for taxpayers

Taxpayers have lost 'staleness' as a potential protection against inaction by HMRC in investigating their affairs. HMRC are bound only by the express statutory conditions in order for a discovery assessment to be valid. Therefore, provided that HMRC act within the time limitations set out in statute, the fact that a 'discovery' may have taken place long before a discovery assessment is actually raised is no longer relevant.

A link to the Supreme Court judgment can be found here.


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