Hankinson v HM Revenue and Customs

For a discovery assessment under section 29 of the Taxes Management Act 1970, the assessing officer must discover an insufficiency of tax. The officer need not also consider or form an opinion that either statutory condition permitting assessment is fulfilled.

Those conditions are matters of objective fact. If challenged, the tribunal determines whether at least one condition was in fact fulfilled on all the evidence. HMRC bears the burden of establishing the applicable condition. The assessment is valid if a condition is fulfilled and invalid if neither is fulfilled, irrespective of the assessing officer’s prior view.

HMRC issued a discovery assessment exceeding £30 million against the taxpayer for income tax and capital gains tax in 1998–99. The First-tier Tribunal found that he had been resident and ordinarily resident in the United Kingdom, that HMRC had made a discovery, and that both the negligence and objective non-awareness conditions were fulfilled.

The Upper Tribunal dismissed his appeal in [2010] UKUT 361 (TCC). The taxpayer appealed on the ground that the assessing officer had also been required, before issuing the assessment, to consider whether either condition in section 29(4) or (5) of the Taxes Management Act 1970 was fulfilled. The central issue was whether discovery alone engaged the assessment power, leaving fulfilment of the conditions to objective determination on appeal.

1. Appeal dismissed unanimously. Lewison LJ, with whom Sir Mark Waller and Mummery LJ agreed, held that the First-tier Tribunal and Upper Tribunal had reached the correct conclusion.

2. Section 29(1) of the Taxes Management Act 1970 concerns the assessing officer’s subjective discovery of an insufficiency. A discovery occurs when it newly appears, for any reason, that the taxpayer has been undercharged. It does not require the ascertainment of a new fact and may result from a changed understanding of the law.

3. By contrast, fulfilment of the conditions in sections 29(4) and 29(5) is a question of objective fact. Nothing in section 29 requires the assessing officer to investigate those conditions, form an opinion about them, or identify a particular condition before issuing the assessment. The statutory contrast between the officer’s opinion under section 29(1) and the objective language of the later subsections supported that construction.

4. If the taxpayer appeals, the tribunal determines on all the evidence whether at least one condition was in fact fulfilled. HMRC bears the burden of establishing fraud or negligence under section 29(4), or objective non-awareness under section 29(5). The taxpayer bears the burden of establishing the generally prevailing practice protection in section 29(2). Requiring an antecedent opinion from the assessing officer would give the taxpayer less protection because the tribunal might then be confined to reviewing that opinion instead of determining the facts.

5. Section 29(8) confirms that an objection based on the absence of both conditions must be made by appeal against the assessment. It presupposes an assessment capable of being appealed and prevents an advance challenge based merely on the officer’s failure to consider the conditions.

6. An assessment is valid if one or both conditions are fulfilled and invalid if neither is fulfilled. That result does not depend upon whether the officer considered the conditions or whether any view formed by the officer was correct.

1. Court of Appeal (Civil Division): Dismissed the taxpayer’s appeal in [2011] EWCA Civ 1566 and affirmed the Upper Tribunal’s construction of section 29 of the Taxes Management Act 1970.

2. Upper Tribunal (Tax and Chancery Chamber): In [2010] UKUT 361 (TCC), upheld the First-tier Tribunal’s decision that discovery was sufficient to permit an assessment to be issued and that fulfilment of the statutory conditions was an objective matter for determination on appeal.

3. First-tier Tribunal: Found that the taxpayer was resident and ordinarily resident in the United Kingdom, that HMRC had made a discovery, and that the undercharge was attributable to negligence. It also found that the objective non-awareness condition was fulfilled.