Commissioners for Her Majesty’s Revenue and Customs v Tooth

A deliberate inaccuracy under sections 29(4) and 118(7) of the Taxes Management Act 1970 requires an intention to mislead HMRC about the truth of a statement. An honest statement does not become deliberate merely because it is inaccurate. A tax return must be construed as a whole, including explanations in additional-information spaces.

A discovery occurs when a particular officer newly forms a reasonable belief that an assessment is insufficient. It requires no new fact or law, is unaffected by knowledge held elsewhere within HMRC, and does not become stale through delay. Another officer may independently make the same discovery. Protection against delayed assessment lies in the statutory conditions and time limits, and in public law.

The taxpayer used an online return to claim the carry-back of an employment-related loss arising from a tax-avoidance scheme. Because the software provided no suitable box, his advisers entered the figure in partnership-loss boxes and explained fully in adjacent additional-information spaces that it was an employment loss. HMRC understood the true basis of the claim but failed to open an enquiry under section 9A of the Taxes Management Act 1970.

After Revenue and Customs Comrs v Cotter [2013] UKSC 69 revealed that HMRC's earlier procedure had not protected its position, an officer issued a discovery assessment in 2014. The First-tier Tribunal allowed the taxpayer's appeal because there was no deliberate inaccuracy. The Upper Tribunal additionally held that there was no qualifying discovery, and the Court of Appeal dismissed HMRC's appeal: [2019] EWCA Civ 826.

The Supreme Court considered whether the return contained a deliberate inaccuracy and whether an individual officer could make a qualifying discovery notwithstanding HMRC's earlier knowledge and the alleged staleness of an earlier discovery.

1. The appeal was dismissed unanimously. Lord Briggs and Lord Sales gave the joint judgment, with which Lord Reed, Lord Leggatt and Lord Burrows agreed. The taxpayer did not satisfy the deliberate-conduct condition in section 29(4) of the Taxes Management Act 1970.

2. Section 118(7) decouples the insufficiency of tax from the required intention. Where an insufficiency results from an inaccuracy in a document, the insufficiency itself need not have been intended, provided the causative inaccuracy was deliberate. Outside section 118(7), section 29(4) may require an intention to bring about the insufficiency.

3. A deliberate inaccuracy is not merely a statement made intentionally which happens to be wrong. The maker must know that the statement is inaccurate and intend to mislead HMRC about its truth. Recklessness might suffice, but that question was left open. This construction reflects the natural language, the 20-year assessment period, and the distinction between careless and deliberate conduct in the statutory penalty regime.

4. The alleged inaccuracy had to be assessed in the context of the return as a whole. HMRC's decision to process a return initially by computer could not alter the meaning of the document. The explanations in the additional-information spaces made clear that the claimed loss was employment-related, arose in the following tax year and had been entered in partnership boxes only because the approved software offered no suitable alternative.

5. The return therefore contained no inaccuracy. Alternatively, there was no intention to mislead. That conclusion was sufficient to invalidate the discovery assessment and required dismissal of HMRC's appeal.

6. On the separately argued discovery issue, section 29(1) focuses on the state of mind of the individual officer responsible for the assessment. HMRC has no collective knowledge for this purpose. A discovery occurs when it newly appears to that officer, on a view reasonably open to an officer, that an assessment is insufficient. No new information of fact or law is required, and successive officers may independently make the same discovery.

7. A discovery is an event and cannot become stale through the passage of time. The contrary dictum in Charlton v Revenue and Customs Comrs [2013] STC 866 was disapproved. Statutory time limits, the conditions governing discovery assessments, and ordinary public-law controls provide the relevant protection against delay or abuse. The First-tier Tribunal was entitled to find that the assessing officer made a qualifying discovery in 2014, so HMRC would have succeeded on that issue alone.

1. United Kingdom Supreme Court: HMRC's appeal was dismissed unanimously. The court rejected the finding of deliberate inaccuracy but held that the assessing officer had made a qualifying discovery: [2021] UKSC 17.
2. Court of Appeal: HMRC's appeal was dismissed. The court unanimously held that there was no qualifying discovery, although a majority found a deliberate inaccuracy: [2019] EWCA Civ 826.
3. Upper Tribunal: The tribunal held that there was no qualifying discovery because HMRC had already formed its view and any earlier discovery had become stale. It also held that the return contained no deliberate inaccuracy.
4. First-tier Tribunal: The tribunal found that the assessing officer had made a discovery in 2014, but allowed the taxpayer's appeal because the return contained no deliberate inaccuracy.