Court of appeal: [2011] EWCA Civ 1566 (Case No: A3/2010/2704)
Normally a taxpayer must prepare and deliver a tax return by 31 January following the year of assessment, and pay all the tax due. HMRC may then enquire into the return by issuing a formal notice within twelve months after the filing date (i.e. 31 January). If HMRC give notice of enquiry there are wide powers enabling HMRC to require the taxpayer to produce documents and particulars. At the end of any such enquiry HMRC may amend the return and issue a closure notice. If HMRC make no enquiry and the taxpayer has not amended his return, the self-assessment return becomes final on the expiry of that twelve-month enquiry period, subject only to the possibility of making a discovery assessment. That twelve-month period is often referred to as the “enquiry window”.
In this case an officer of HMRC made a discovery assessment for the tax year 1998-99 on 24 January 2005, long after the end of the tax year in question. The “discovery assessment” made under section 29 of the Taxes Management Act 1970 was raised on the ground that HMRC had discovered that during the tax year 1998-1999 the taxpayer had been resident and ordinarily resident within the UK. The ‘discovery’ by HMRC was that there was undercharge to tax for that year of assessment attributable to negligent conduct by the taxpayer. For good measure they also decided that when the enquiry window closed an officer of HMRC could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the undercharge to tax for that year of assessment.
The question was, to invoke the provisions of s.29 (as it stood at that time) of TMA, if it was sufficient that an officer had discovered an insufficiency for the year of assessment in question or must he also consider whether either or both of the following conditions is or are fulfilled.
The two conditions as it stood at that time were:
-The discovery assessment is attributable to fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf
– The officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the loss of tax i.e. in this case due to the taxpayer being resident and ordinarily resident in the UK for the tax year.
Both the FTT and the Upper Tribunal held that the making of a discovery was sufficient but the appellant argued that the two conditions above were pre-conditions to the raising of a discovery assessment.
The court of appeal noted that in the present case the liability was created by the combination of the taxing statute and the fact that the taxpayer was resident and ordinarily resident in the UK during the year of assessment. His liability to pay tax did not depend on the fulfillment of the two (pre) conditions in section 29 so whether the (pre) conditions were or were not satisfied was irrelevant to the taxpayer’s actual liability to pay tax.
The court of appeal agreed with the decisions of the First-tier and the Upper Tribunals and the appeal was dismissed.
