In April 2023 the Upper Tribunal (UT) judged that there was a lack of evidence that a taxpayer, or someone acting on his behalf, had acted carelessly or deliberately, so the extended time limits for the issuance of discovery assessments did not apply and the discovery assessments, which had been upheld by the First-tier Tribunal (FTT), were invalid.

Back in 2016 HMRC had issued the taxpayer with three discovery assessments, one more than four years old and two more than six. The FTT held that they had been issued in time, as the taxpayer or his agent had acted carelessly in one case, and deliberately in the other two so the extended time limits applied.  The issues related to understatement of profits in a successful business and the over claim of capital allowances without sufficient documentary proof.

The UT overturned the FTT judgement, finding for the taxpayer because of a lack of evidence of carelessness or dishonesty.  The FTT had not given adequate reasons for its finding that the accountants had acted carelessly, particularly as HMRC’s case had been that it was the taxpayer who acted carelessly.  The firm of accountants that assisted the taxpayer had given no evidence and was not cross-examined, so in the absence of knowing how it had reached its conclusions a finding could not be made against it.  Similar arguments applied to the FTT’s reasoning for deliberate behaviour.

The decision can be found at: Ramasamy Danapal v The Commissioner of His Majesty’s Revenue and Customs [2023] UKUT 00086 (TCC) – GOV.UK (www.gov.uk)

We are experienced with tax investigations and can assist with negotiations and discussions with HMRC.  Please consult with us where you or your company have received any assessment or enquiry from HMRC.

This case may have been averted where consideration was given to record keeping and evidence of necessary to support claims, in particular capital allowances.  We would be pleased to assist with systems design and review of records to ensure sufficient evidence is retained to support positions taken in tax returns and accounts.