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Tax disputes briefing: Upper Tribunal reconfirms that a discovery assessment cannot be defeated on grounds of "staleness"


In the recent case of Paul Harrison v HMRC [2023] UKUT 38 (TC), the Upper Tribunal had to consider whether it was bound by a Supreme Court obiter dictum (observation not forming part of the grounds of the decision in the relevant case), that a discovery assessment cannot be defeated on grounds of "staleness".

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Discovery assessments are a significant HMRC power, allowing it to recover 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 (but can be extended, for example, to six years if the taxpayer has been careless or 20 years in respect of certain deliberate behaviours). 

Prior to the Supreme Court's 2021 decision in HMRC v Tooth, the concept of 'staleness' had been developed through a series of decisions in lower courts and tribunals, with the effect that, if HMRC did not act sufficiently promptly after an officer discovered an insufficiency of tax, the discovery could become 'stale', such that any subsequent discovery assessment would be invalid.  However, in Tooth, the Supreme Court unanimously held the concept of staleness did not exist, and could not, therefore, be used to defeat a discovery assessment.  

The Supreme Court's reasoning in Tooth on "staleness", although clear, was obiter, and, as under English law general principles obiter dicta are not binding, some had argued that there was still the possibility of taxpayers successfully invoking the concept of staleness.  This was an argument counsel for the taxpayer ran in Harrison, which involved a discovery assessment relating to unpaid tax on a "finder's fee".


The Upper Tribunal observed that the Supreme Court's decision on staleness was clearly given in order to provide general guidance on the “important question” of staleness, and was exhaustive in its analysis, was given on the basis of full argument by leading counsel and took into account and dealt with a number of competing arguments. 

The Tribunal considered the reasoning in Tooth met the conditions established by case law for when an obiter dictum can be binding – broadly, where, in a unanimous decision, the Supreme Court has directed that an otherwise binding decision of a lower court should not be followed and has proposed an alternative test that it says must be adopted. This led it to conclude that it did "not accept that, notwithstanding Tooth …, the doctrine of staleness is, like Monty Python’s parrot, “not dead, only sleeping”. It is deceased."


As noted by the Tribunal, since Tooth numerous Upper Tribunal decisions have been reached on the basis that staleness does not exist, so a finding for the taxpayer on this point in Harrison would have been, to say the least, interesting.  This decision may, therefore, be the final nail in the coffin for staleness. 

The Harrison decision also provides useful guidance as to when obiter dicta can be considered binding.

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