Inspector of Taxes v Veltema

For an innocent error in a self-assessment, a discovery assessment is barred by section 29(5) of the Taxes Management Act 1970 only where the officer could reasonably have been expected, from the information statutorily made available, to be aware of an actual insufficiency. Awareness that the assessment may be questionable, or that further investigation might reveal an insufficiency, is insufficient.

The relevant information is confined to the categories in section 29(6), principally information supplied by the taxpayer and information whose existence and relevance may reasonably be inferred from it. The provision does not attribute information that an officer might obtain by making further enquiries. An officer has no statutory duty to investigate a disclosed valuation merely because checking it could reveal an error.

The taxpayer received a company-owned house as an employment benefit and returned its value as £100,000. He had disclosed all relevant information and was neither fraudulent nor negligent. After the statutory enquiry period expired, the Revenue obtained a valuation of £145,000 and made a discovery assessment for the resulting £18,000 tax shortfall under section 29 of the Taxes Management Act 1970.

The General Commissioners allowed the taxpayer's appeal. Park J upheld that decision, reasoning that information available to the inspector should have prompted basic checks which would have revealed the undervaluation.

The inspector appealed. The central issues were whether section 29(5) required constructive awareness of an actual insufficiency or merely circumstances suggesting a possible insufficiency, and whether the relevant information was confined to the categories defined by section 29(6).

1. Appeal allowed unanimously. The General Commissioners and Park J had addressed the wrong question. The section 29 discovery assessment for £18,000 was restored.

2. Section 29(5) of the Taxes Management Act 1970 concerns what the officer could reasonably have been expected to know, not what enquiries the officer could reasonably have been expected to undertake. The required object of that awareness is the situation in section 29(1): an actual insufficiency in the assessment. Awareness that a valuation is questionable, or that investigation might reveal an insufficiency, does not prevent a discovery assessment. Auld LJ gave the leading judgment; Chadwick LJ agreed.

3. The self-assessment scheme seeks simplicity and early finality on the assumption of an honest and accurate return. It permits the Revenue to undertake routine checks and to open an enquiry under section 9A. It does not impose an intermediate duty to investigate a return which discloses no insufficiency, even where further inquiry or expert valuation might reveal one.

4. The information relevant under section 29(5) is confined by section 29(6) to the specified categories. Those categories principally comprise information supplied by the taxpayer and information whose existence and relevance could reasonably be inferred from it. Other material, such as the employer's P11D form, was therefore irrelevant to the statutory test. In any event, that form disclosed the nature of the asset but contained nothing suggesting that the £100,000 valuation was unreliable.

5. Chadwick LJ considered that an inspector could be treated as aware of what would have been discovered by calling for valuation information whose existence could reasonably be inferred. Arden LJ did not accept that extension. She held that section 29(6)(d)(i) does not attribute information which cannot itself reasonably be inferred from material supplied by the taxpayer. Auld LJ's reasoning likewise rejected attribution of the fruits of further enquiries. On the facts, even the existing professional valuation supported a figure close to £100,000, so the difference did not affect the result.

6. Nothing in the return or the P11D form could reasonably have made the inspector aware that the valuation was understated. The statutory condition was therefore satisfied and the discovery assessment was valid.

1. Court of Appeal (Civil Division): The inspector's appeal was allowed unanimously. The section 29 assessment for £18,000 was restored.
2. High Court, Chancery Division: Park J dismissed the inspector's appeal by way of case stated and upheld the General Commissioners' decision. No citation is stated.
3. General Commissioners: The taxpayer's appeal against the discovery assessment was allowed because neither statutory condition for such an assessment had been satisfied.