The Supreme Court (SC) has ruled on a case where a taxpayer had used a tax avoidance scheme that created employment losses (in a similar manner to the scheme used by comedian Jimmy Carr) but knowingly used an incorrect box on his tax return to report those losses.  The case was initially judged by the First-tier Tribunal in 2016 that found for the taxpayer and then proceeded to the Upper Tribunal and to the Court of Appeal.  The SC has made a final judgement.

When the taxpayer’s advisers came to file the tax return for the relevant period they were unable to use the specific box for employment losses and so used the box for partnership losses after being advised by the software provider, IRIS.  The adviser then informed HMRC of this by way of using the ‘white space’ that is available for taxpayers to disclose information to HMRC.  The adviser disclosed that a tax avoidance scheme was being used and that due to a technical software issue they were entering the losses as partnership losses as they couldn’t be entered as employment losses.

The tax avoidance scheme isn’t the question in this case but rather whether the intended error was a deliberate inaccuracy as where a taxpayer makes a deliberate inaccuracy then a discovery assessment can be issued during a period of 20 years from the end of the tax year that the return relates.  HMRC issued a discovery assessment stating that the taxpayer and his adviser had made a deliberate inaccuracy.  The Supreme Court confirmed that a deliberate inaccuracy is one where the taxpayer or their advisers try to mislead HMRC.  This was not the case for this particular taxpayer as full disclosure was made and HMRC ‘invited’ further comments by means of the white space that the taxpayer’s adviser had utilised.

The decision can be found at: Commissioners for Her Majesty’s Revenue and Customs (Appellant) v Tooth (Respondent) – The Supreme Court

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