The Supreme Court’s recent judgment In HMRC v Tooth  UKSC 17, will increase clarity for taxpayers. However, it has taken away a potential means of challenging an assessment.
The judgment reads like a statement of the obvious. However, the issues involved seemed complex and contentious as the case worked its way through the lower courts so the clarity is to be welcomed.
The case primarily considered the question of whether the taxpayer’s return contained a deliberate inaccuracy. The taxpayer had sought to enter employment losses on the relevant electronic form but there was no box available to enter such information. Instead, having taken advice, he entered the loss on the partnership loss pages and added an explanation as to what he had done (and why) in the accompanying white space.
The Court of Appeal had struggled with the question of whether this constituted a deliberate inaccuracy. Two of the three Court of Appeal judges found that it did, by applying what the Supreme Court later described as a ‘tunnel vision’ approach. The Court of Appeal looked at whether the information in each particular box was correct – even if any possible inaccuracy was explained fully elsewhere. On this literal view, the fact that the partnership pages contained employment information meant that there was plainly an inaccuracy, even though a full explanation had been provided.
The Supreme Court took a more sensible purposive view. The taxpayer had clearly sought to communicate the right information to HMRC, but was hampered by an intractable online form. The document should be looked at as a whole. Taking this approach, it was clear there was no inaccuracy. Furthermore, given the absence of any attempt to mislead, any inaccuracy could not be seen to be deliberate.
In addition, the Supreme Court considered the concept of ‘staleness’ in discovery assessments. Recent cases have given rise to the notion that upon discovering a loss of tax, HMRC must act promptly to raise a discovery assessment or the discovery assessment will become stale and invalid. This has allowed some taxpayers a means of challenging what would otherwise be valid assessments, but has also lead to a considerable amount of uncertainty as to the circumstances in which a discovery becomes stale.
The Supreme Court held decisively that staleness did not exist within the statutory scheme. The legislation sets out a series of clear time limits and an assessment may be made at any time up to those limits.
Overall, the decision provides much-needed clarity and certainty on some key technical points. As a matter of principle, a taxpayer should not be penalised for making good-faith attempts to provide information to HMRC through online tax returns. Furthermore, the clear position on staleness avoids the need for costly disputes on the point – albeit some clients might have benefitted from being able to side-step an otherwise valid assessment.
The Supreme Court unanimously dismisses HMRC’s appeal in HMRC v Tooth