The recent cases of Hankinson v HMRC (UKUT361(TCC)) and Ho v HMRC (UKFTT387) add to the understanding of discovery assessments. Section 29 TMA 1970 sets out the circumstances where HMRC can make assessments when they no longer have the option to enquire into a tax return

This posting looks at Hankinson. The taxpayer appealed to the Upper Tribunal (UT) questioning the right in law of HMRC to make a discovery assessment. The First Tier Tribunal had determined matters of fact relating to Hankinson’s residence in the UK and these had not been appealed. The aggregate income tax and capital gains tax at stake was in excess of £30 million.

The appellant contended that before a discovery assessment is made the HMRC officer’s decision making process is twofold: has a discovery has been made and, if so would s29 prevent an assessment.

S29, described in the court’s decision as serving to “protect the taxpayer who has made an honest, complete and timely return”, imposes two conditions, either of which can protect the taxpayer from a discovery assessment: was the taxpayer either fraudulent or negligent or could the HMRC officer have been reasonably expected to be aware, based on the information provided, that further tax was due.

The UT decision was that HMRC do not have to consider whether these conditions apply: it is sufficient for an assessment to be made that the officer has discovered an insufficiency of tax. The conditions enable the taxpayer to challenge the assessment on appeal and it is then up to the Tribunal to consider them.

It will be interesting in the coming months to see how HMRC’s Schedule 36 powers will affect the discovery issue. These powers are now being using widely to look at errors in years closed against the normal enquiry route.