The Commissioners for HMRC v Shaun Harte

For discovery assessments containing several distinct losses of tax, the conduct conditions in Taxes Management Act 1970, section 29, apply to each discovered loss. A loss brought about by reasonable care cannot be included merely because another loss in the same assessment resulted from deliberate conduct. The extended time limits in section 36 likewise apply by reference to the conduct relating to each loss. A taxpayer may therefore establish on appeal that an assessment is excessive to the extent that it includes losses outside the statutory discovery gateway or outside the applicable time limit.

HMRC appealed against the decision of the First-tier Tribunal in Harte v HMRC [2024] UKFTT 00493 (TC). The FTT had reduced discovery assessments covering several tax years because different components of the alleged insufficiencies had different factual causes and culpability levels.

The Bank Statement insufficiency was deliberate, the Capital Allowance and Deductible Expense insufficiencies were careless, and the Credit Card insufficiency arose despite reasonable care. The central issue was whether one deliberate insufficiency validated the whole assessment and attracted the 20-year time limit for all its components, or whether the statutory conditions applied separately to each loss of tax.

1. Appeal dismissed. The FTT had adopted the correct construction of sections 29 and 36 of the Taxes Management Act 1970.
2. Section 29 is concerned with the particular loss of tax discovered. The conduct condition in section 29(4) asks whether that loss was brought about deliberately or carelessly. The statute contains no basis for treating culpable conduct relating to one loss as satisfying the condition for a different loss.
3. A loss not brought about by deliberate or careless conduct, where section 29(5) is not relied upon or established, falls outside the permitted scope of a discovery assessment. It may therefore be removed as an overcharge under section 50(6), without invalidating the remainder of the assessment.
4. Section 36 presupposes a valid discovery assessment in respect of the relevant loss. Its reference to an assessment in a case involving a loss of tax does not permit HMRC to aggregate unrelated losses and apply the longest available time limit to all of them. The applicable time limit follows the conduct associated with each loss.
5. The authorities relied upon by HMRC did not determine the present construction issue. The relevant observations in Hargreaves v HMRC were obiter or concerned a different argument. The two-stage burden of proof recognised in cases including Hurley v Taylor did not prevent a taxpayer showing that particular losses were outside the permitted scope of the assessment.
6. Applying that construction, the Credit Card insufficiency was properly removed because it arose despite reasonable care. The Capital Allowance and Deductible Expense insufficiencies for 2009/10 to 2011/12 were also properly removed because the six-year careless-conduct limit had expired.

• Upper Tribunal (Tax and Chancery Chamber) — HMRC’s appeal against the FTT decision was dismissed.
• First-tier Tribunal (Tax Chamber) — In Harte v HMRC [2024] UKFTT 00493 (TC), the FTT reduced the discovery assessments to exclude losses not satisfying the relevant conduct conditions or applicable time limits.