HMRC could understand exactly what Raymond Tooth was claiming because his advisers explained it in the free-text boxes of his return. Yet they had deliberately used the wrong box to enter the amount. Did that make the return deliberately inaccurate and open a twenty-year period for assessment?
Mr Tooth claimed an employment-related loss against income in the preceding year. A software problem prevented his advisers entering it in the intended box. They used the partnership pages of the online return and explained in the adjacent free-text fields what the figure represented, why they had entered it there and why HMRC might dispute the claim.
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HMRC read the return and understood the claim perfectly. They opened an enquiry under Schedule 1A to the Taxes Management Act 1970 rather than under section 9A. After the Supreme Court’s decision in Cotter it became clear that a Schedule 1A enquiry could not challenge a claim embedded in a self-assessment, and that the return had become final subject only to a discovery assessment. In October 2014 an officer, Mr Williams, reviewed the file for the first time and caused a discovery assessment to be issued for £475,498.37, relying on the 20-year time limit on the ground that the insufficiency had been brought about deliberately.
Deliberate inaccuracy
Section 29(4) permits a discovery assessment where the insufficiency was brought about carelessly or deliberately. Section 118(7) includes within “deliberately” a situation that arises from a deliberate inaccuracy in a document given to HMRC. The Court held that this requires an inaccuracy that is itself deliberate—an intention to mislead HMRC as to the truth of the statement—not merely a statement made intentionally that happens to be wrong. An honest mistake, even after reasonable care, cannot open the 20-year period; that would be less protective than the six-year limit for carelessness and would be inconsistent with the penalty regime, which treats deliberate conduct as substantially more blameworthy. Whether recklessness would suffice was left open.
The return had to be read as a whole. The fact that it would first be processed by computer did not change its meaning or allow HMRC to ignore the white-space explanations they had themselves provided. Read in context, the partnership entries were not inaccurate: they were the only practical way to generate the self-assessment figure the taxpayer genuinely believed to be correct, and the neighbouring text made the true nature of the claim explicit. HMRC’s own suggested alternative—entering an incorrect figure elsewhere and explaining it—would equally have depended on text to qualify a box. There was therefore no inaccuracy, deliberate or otherwise. Even on a narrower reading, nothing showed an intention to mislead.
Discovery
Section 29(1) looks to the state of mind of the individual officer who decides to assess, not to any collective knowledge of HMRC. A discovery is simply a new conclusion by that officer that an assessment is insufficient; it does not require new facts and does not become “stale” merely by the passage of time. The statutory time limits run from the end of the year of assessment, not from the discovery, and already differentiate according to culpability. Any unfair delay is a matter for public-law challenge, not for distorting the statute. The First-tier Tribunal was entitled to find that Mr Williams himself reached the relevant conclusion in October 2014. Had the appeal turned only on discovery, it would have succeeded.
Verdict: The Supreme Court unanimously dismissed HMRC’s appeal. A discovery had been made, but Mr Tooth had not deliberately brought about the insufficiency. The assessment relying on the extended period was therefore invalid. The Court left open whether recklessness could suffice for deliberate inaccuracy.
Source: Commissioners for Her Majesty’s Revenue and Customs v Tooth [2021] UKSC 17
