Revenue And Customs v Tooth

A discovery assessment is valid only if an officer newly concludes that an assessment is insufficient. A new reason for challenging an insufficiency, or a decision to use a different statutory mechanism, is not itself a discovery. HMRC must plead and prove that new conclusion.

For the statutory deeming provision, a document may contain an inaccuracy even if the document read as a whole explains the true position. A deliberate inaccuracy which causes the tax computation to understate liability may satisfy the statutory conditions. Those conclusions were unnecessary to the disposal because the discovery requirement was not established.

Mr Raymond Tooth used the Romangate tax scheme and filed a 2007/08 return claiming relief for employment-related losses arising in 2008/09. His return included a personal tax computation, producing a repayment. HMRC initially pursued the claim under Schedule 1A to the Taxes Management Act 1970, but accepted after Revenue and Customs Commissioners v Cotter that the return had not been validly amended or investigated through that mechanism.

HMRC then issued a discovery assessment under section 29 of the Act, asserting that the self-assessment was insufficient and that the insufficiency had been brought about deliberately. The First-tier Tribunal allowed the appeal on the deliberateness issue. The Upper Tribunal, in [2018] UKUT 38 (TCC), held that HMRC had not established a sufficient discovery and upheld the result. The central questions were whether there had been a new discovery of insufficiency and whether the statutory deliberateness conditions were satisfied.

1. Appeal dismissed. HMRC had not established a valid discovery under section 29 of the Taxes Management Act 1970. The relevant discovery had to be a new conclusion that Mr Tooth’s 2007/08 self-assessment was insufficient. A newly identified reason for regarding an assessment as insufficient, or a decision to invoke another mechanism for addressing an insufficiency already recognised, was insufficient.
2. The approach in Charlton & others v RCC was approved: no new information of fact or law was required, but it had to have newly appeared to an officer acting honestly and reasonably that there was an insufficiency. HMRC’s case and evidence showed that the insufficiency had been recognised from the outset, while the later events concerned the unsuccessful use of Schedule 1A and the need for a different remedy. The case could not properly be remitted to give HMRC another opportunity to advance an unpleaded discovery case.
3. The court considered the deliberateness issue although it was unnecessary to the result. Floyd LJ held that, read as a whole, the return contained no inaccuracy. Males LJ and Patten LJ held by majority that an inaccurate entry remained an inaccuracy in the document even though another part explained the true position. The judges agreed that a deliberate inaccuracy could cause the insufficiency through the tax computation, without proof that the taxpayer intended that fiscal consequence.
4. This separate reasoning did not affect the unanimous dismissal of the appeal on the discovery issue.

• Court of Appeal (Civil Division) — [2019] EWCA Civ 826: appeal dismissed because HMRC had not proved a valid discovery.
• Upper Tribunal (Tax and Chancery Chamber) — [2018] UKUT 38 (TCC): appeal from the First-tier Tribunal was dismissed. The tribunal held that HMRC had not established a sufficient discovery and that any alleged inaccuracy was not deliberate.
• First-tier Tribunal (Tax): Mr Tooth’s appeal against the discovery assessment was allowed. The tribunal accepted that a discovery had been made but held that the deliberateness condition was not satisfied.