G4: Time limits (direct tax)

Calculating time: when the clock stops

Assessment made when decision made to assess and entry into the computer authorised

“Dr Branigan made the assessment when, having decided to make it, he authorised the entry of its amount into the computer” (Corbally-Stourton v. HMRC [2008] UKSPC 00692, §91, Special Commissioner Hellier)

Difference between making an assessment and notifying it

“There is no basis for saying that the appellant is not liable to a penalty of £100, simply because he was not notified of the assessment. Assessment and notice of it are two different things. There is clear authority for this view in relation to income tax in Honig v Sarsfield (HM Inspector of Taxes) 59 TC 337. In that case there was a time limit for making an assessment. The assessment was physically made by HMRC using the procedures then in force before the deadline, but the notice of the assessment, after being sent and returned undelivered twice, finally reached the assessee after the time limit.” (Patrick v. HMRC [2015] UKFTT 508 (TC), §84).

HMRC apply time limits to notice of assessment (at least for VAT purposes)

“The VAT legislation prescribes time limits only for the making of an assessment. It does not prescribe any time limits for the notification of an assessment…However, it is clearly undesirable that our time limit rules should attach to a made date which is neither obvious or routinely disclosed to taxpayers. Consequently, all assessments must have [been] notified to the taxpayer within the time limit for making the assessment in order to demonstrate that it was indeed made in time. Any detrimental revenue [effect] of using the notification date for time limit purposes is relatively insignificant and more than compensated for by the removal of contentious litigation surrounding the made date.” (HMRC Manual, VAEC6080).

Calculating time: when the clock stops

Ordinary time limit: 4 years

Income tax and CGT

"(1) Subject to the following provisions of this Act, and to any other provisions of the Taxes Acts allowing a longer period in any particular class of case, an assessment to income tax or capital gains tax may be made at any time not more than 4 years after the end of the year of assessment to which it relates.

(2) An objection to the making of any assessment on the ground that the time limit for making it has expired shall only be made on an appeal against the assessment.

(3) In this section “assessment” does not include a self-assessment." (TMA 1970, s.34)

Corporation tax

"(1) Subject to any provision of the Taxes Acts allowing a longer period in any particular class of case no assessment may be made more than [4 years]1 after the end of the accounting period to which it relates." (FA 1998, Sch 18, para 46(1))

"The provisions of paragraphs 46 to 48 (assessments: general provisions as to time limits, procedure and appeals) apply to a discovery determination as they apply to an assessment." (FA 1998, Sch 18, para 49)

SDLT

"(1) The general rule is that no assessment may be made more than 4 years after the effective date of the transaction to which it relates." (FA 2003, Sch 10, para 31)

Ordinary time limit: 4 years

Extended time limit only applies to the loss caused by the relevant behaviour

"[83] The total amount of input tax relating to the Prendergast invoices in respect of the periods December 1991 to March 1992 is £174,752·40. The argument that seems to have been accepted by the tribunal is that s 77(4) can be invoked by the commissioners, and the extended 20-year period utilised, in respect of all irregularities in a tax return for a particular accounting period, provided that VAT has been lost as a result of s 60(1) conduct in relation to at least one of those irregularities. There is no obvious reason why Parliament should have intended such a disproportionate and extravagant power to be given to the commissioners. In my judgment, the court should be slow to impute such an intention to Parliament in the absence of clear evidence in the statute. The time limits for irregularities other than s 60(1) conduct leading to a loss of VAT are stated in s 77(1): they are much shorter than the 20-year limit that is imposed by s 77(4). This distinction was plainly made because Parliament recognised the difficulties that fraud causes to the commissioners, and the need for generous time limits to ensure, so far as reasonably possible, that taxpayers are not allowed to retain VAT lost to the commissioners as a result of fraud. But there is no logical justification for extending the s 77(1) time limit for other irregularities in the return for an accounting period, simply because there also happens to have been a loss of VAT as a result of s 60(1) conduct in relation to the same accounting period.

[84] Mr Parker was unable to concede that the tribunal made a mistake in relation to the Prendergast invoices, but neither did he seek to support this part of para 271 of the decision with any enthusiasm. In my view, he was right not to do so. As he fairly pointed out, there is no reason why, if necessary, there cannot be a number of assessments in respect of the same accounting period. That is expressly envisaged by s 73(4), which provides that, where a person is assessed under sub-ss (1) and (2) of s 73 in respect of the same accounting period, the assessments may be combined. Moreover, s 77(6) expressly empowers the making of supplementary assessments otherwise than in circumstances falling within ss 73(6)(b) or 75(2)(b)." (McNicholas Construction Co Ltd v. CCE [2000] STC 553, Dyson J)

The assessment is only valid to the extent that the loss of tax is attributable to careless or deliberate behaviour

“There is no general power to raise assessments under s 29 and, in the case of s 29(4), the power that exists is limited to making good a loss of tax that is brought about by careless behaviour.” (Bubb v. HMRC [2016] UKFTT 216 (TC), §45).

Extended time limit only applies to the loss caused by the relevant behaviour

HMRC have burden of proving careless/deliberate behaviour and loss of tax attributable

See further N9: Burden of proof

(Mullens v. HMRC [2023] UKUT 244 (TCC), Richards J and Judge Andrew Scott)

“The onus is on HMRC to establish negligence.” (Hargreaves v. HMRC [2014] UKUT 395 (TCC), §21(4)).

HMRC have burden of proving careless/deliberate behaviour and loss of tax attributable

- HMRC do not have the burden of proving detail (such as source or timing of income)

"[9(1)]...However, he argues that the FTT erred by failing to realise that, for HMRC to discharge their Section 36 Burden, they had to show, in addition to culpable conduct, there was an actual loss of some tax in the years of assessment covered by the ETL assessments. Mr Mullens argues that to discharge their Section 36 Burden, HMRC needed to establish matters such as (i) the taxable source from which the payments derived; (ii) the status of the payments as income (rather than capital); and (iii) that the payments were taxable in the years specified in the ETL assessments, as distinct from other tax years (“Constituents (i) to (iii)”).

[...]

[69(2)] Where HMRC do not need to discharge a Section 29(4) Burden (for example, where a discovery assessment is made in reliance on s.29(5) of TMA or where the taxpayer has not submitted a self-assessment return for the tax year in question), the approach to the Section 36 Burden set out in Hurley remains valid notwithstanding changes to the statutory landscape since it was decided. By way of a summary of that approach as applicable to the facts of Mr Mullens’ appeal (which should not be taken as a substitute for the more detailed approach set out in Hurley itself):

(a) There is a clear asymmetry in information between taxpayers and the tax authorities: taxpayers know about their affairs while HMRC can, in the absence of information as to those affairs, often do little more than make inferences from such information as they do have.

(b) In the most egregious cases (such as fraud on the part of the taxpayer) HMRC are likely to be faced with taxpayers who have attempted to conceal the true position or put obstacles in the way of HMRC finding out the relevant material;

(c) Consequently, if HMRC wish to make a discovery assessment, they will, almost inevitably in those egregious cases, struggle to do the job that the taxpayers are required by law to do, namely analyse a full and complete set of facts and then produce an accurate assessment of their tax liabilities.

(d) The law recognises that essential difficulty by imposing a Section 36 Burden requiring HMRC to demonstrate only that the conduct in question meets the relevant culpability standard having a link to the tax being assessed and that the assessment was made in the requisite 6-year or 20-year period. Discharging the Section 36 Burden requires HMRC to demonstrate that the conduct resulted in some tax going unpaid as otherwise the requisite link will not be present.

(e) However, the law does not require HMRC to do something that they are not equipped to do in those cases such as establish the presence of Constituents (i) to (iii).

(f) The paradigm case in the past was where the Revenue produced capital statements which, prima facie, showed a loss of tax as a result of culpable conduct requiring an explanation from the taxpayer. If that explanation was not accepted, the Revenue would have met their Section 36 Burden. It would then fall to the taxpayer to displace the assessment: there is nothing unfair or unexpected in that as it is the taxpayer who has the relevant information.

(g) However, the paradigm case considered in Hurley is not the only case. HMRC can meet their Section 36 Burden by putting forward a prima facie case of a loss of tax brought about by culpable conduct that does not rely on capital statements if the taxpayer fails to answer that prima facie case adequately."

(Mullens v. HMRC [2023] UKUT 244 (TCC), Richards J and Judge Andrew Scott)

- HMRC do not have the burden of proving detail (such as source or timing of income)

- No real difference between TMA s.29(4) and s.36 burdens

"[35] The language of s.36(1) and (1A) (in particular, the references to a loss of tax “brought about [carelessly] [deliberately] by” the taxpayer) mirrors the language of s.29(4). As we have already explained, s.29(4) requires HMRC to show that the “fact of the undercharge” has been brought about by the culpable conduct. If that condition is met for the purposes of s.29(4), the similarity of the statutory language suggests that there would similarly be a “case involving a loss of income tax or capital gains tax … brought about [carelessly or deliberately]” for the purposes of s.36(1) and (1A). In short, there is a clear suggestion that s.36(1) and (1A) do not require HMRC to establish anything more to discharge their Section 36 Burden than they need to discharge their Section 29(4) Burden with the exception of showing, if there is any doubt, the date on which the assessment is actually made..." (Mullens v. HMRC [2023] UKUT 244 (TCC), Richards J and Judge Andrew Scott)

- No real difference between TMA s.29(4) and s.36 burdens

Loss brought about carelessly: 6 years

Income tax and CGT

"(1) An assessment on a person in a case involving a loss of income tax or capital gains tax brought about carelessly by the person may be made at any time not more than 6 years after the end of the year of assessment to which it relates (subject to subsection (1A) and any other provision of the Taxes Acts allowing a longer period)." (TMA 1970, s.36(1))

Corporation tax

"(2) An assessment in a case involving a loss of tax brought about carelessly by the company (or a related person) may be made at any time not more than 6 years after the end of the accounting period to which it relates (subject to sub-paragraph (2A) and to any other provision of the Taxes Acts allowing a longer period)." (FA 1998, Sch 18, para 46(2))

SDLT

"(2) An assessment of a person to tax in a case involving a loss of tax brought about carelessly by the purchaser or a related person may be made at any time not more than 6 years after the effective date of the transaction to which it relates (subject to sub-paragraph (2A))." (FA 2003, Sch 10, para 31)

Loss brought about carelessly: 6 years

- The carelessness must cause the loss

"[80]...The FTT concluded that Mr Hargreaves was in breach of duty in failing to take further advice from PwC prior to submitting the Return with the claim to be non-resident. The question which then arises is what would have happened if Mr Hargreaves had complied with his duty, and had sought and obtained the required further advice from PwC. That in turn raises the question of what advice PwC would have given in this hypothetical situation. By way of example, if PwC could legitimately (ie. non-negligently) have advised Mr Hargreaves that, despite the change in circumstances, it would still be appropriate for him to submit the Return with a claim to be non-resident, that would support Mr Hargreaves’ argument that the Situation was not attributable to the negligence found against him by the FTT. The outcome would still have been the same, so the argument would go, even if the further advice had been sought. By contrast, if PwC could not legitimately (ie. non-negligently) have advised Mr Hargreaves that it was appropriate to submit the Return with a claim to be nonresident, that would support the argument of HMRC that the Situation was attributable to the negligence of Mr Hargreaves. On this hypothesis, so the argument would go, the claim to non-residence would not have been made if the required further advice had been obtained from PwC." (Hargreaves v. HMRC [2022] UKUT 34 (TCC), Edwin Johnson J)

"[62(2)] Second, it did not take into account the fact that s36 of TMA is concerned with the question of whether a failure to take reasonable care causes a loss of tax. The FTT identified the failure to obtain advice as a careless omission. However, it did not go on to consider what would have happened if BFL had asked PPCL if the Falken 1 loan qualified. That was a relevant consideration because, if PPCL would have replied that it believed the documentation it had drafted would be effective, that might well have demonstrated that BFL’s carelessness did not cause the loss of tax." (HMRC v. Bella Figura [2020] UKUT 120 (TCC), Nugee J and Judge Richards)

"[358] TMA s 36 applies where the loss of tax has been “brought about” by carelessness. In BFL the UT said at [61(2)] that “s 36 of TMA is concerned with the question of whether a failure to take reasonable care causes a loss of tax”. We therefore agree with [the taxpayer] that the section requires us to ascertain whether the loss of tax would have been avoided had the person not been careless.

...

[363] In summary, we therefore do not know whether Mr Strachan’s view as to his domicile status would have been confirmed had he taken advice before filing his 2011-12 and 2012-13 SA returns. It would have depended on who was instructed to provide an opinion. The position is thus not the same as that of taxpayers such as Ms Alpha and Mr Beta, where any reasonably competent adviser would have given the same advice.

...

[371] HMRC have not met that part of their burden, because they have not been able to show that had Mr Strachan taken advice, the loss of tax would have been avoided: in other words, that the loss of had been “brought about” by his carelessness." (Strachan v. HMRC [2023] UKFTT 717 (TC), Judge Redston)

"[101] ... Although his carelessness in sending responses to HMRC’s enquiries which were clearly and obviously incorrect (in stating, for example, that there was no counsel’s opinion, marketing material or documentation for the Scheme and in its description of Mr Callen’s business) is arguably not carelessness which brought about the inadequate tax assessments, as it post-dated the submission of the tax returns, it is consistent with the Mr Bevis’ approach throughout his handling of the tax returns of paying little, or no, regard to the information he was providing to HMRC." (Callen v. HMRC [2022] UKFTT 40 (TC), Judge Bowler)

However

"[413] [Counsel for the taxpayer] submitted that there must be a causal connection between the carelessness and the insufficiency in the tax assessments or returns. He submits that HMRC must provide evidence to prove that if the UK LLP had not been careless it would have allocated the profits correctly under the profit sharing rules relying upon cases such as Anderson v HMRC [2016] UKFTT 335 and HMRC v Bella Figura [2020] STC 922.

[414] HMRC submit that the answer is provided by s118(5) TMA which states:

"For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation".

[415] We agree that we should apply the approach as set out in the Upper Tribunal case of Atherton v HMRC [2019] STC 575. There the Upper Tribunal specifically referred to s118(5) TMA and said at [61]:

"... The relevant question is... Whether the taxpayer and those acting on his behalf took reasonable care to avoid creating the insufficiency in the assessment.

62 ... The duty of the taxpayer is to take reasonable care to avoid bringing about an insufficiency and if he does not do so then the insufficiency is brought about carelessly."

[416] On the assumption that there was an insufficiency as a result of the application of the profit sharing rules we are satisfied that the UK LLP did not take reasonable care to avoid bringing that about given the findings we have made and conclusions we have reached above.

[417] None of the Upper Tribunal authorities to which we were referred suggest that there is some requirement that HMRC procure expert evidence to show that if, in this case, the UK LLP had obtained counsel's opinion, that opinion would have concluded that the profit sharing legislation requires a different allocation of profits in the tax returns." (The Boston Consulting Group UK Ltd v. HMRC [2024] UKFTT 84 (TC), Judge Bowler - Obiter because FTT found that no charge arose under the mixed membership rules)

- The carelessness must cause the loss

Meaning of careless

See A3: Reasonable excuse and carelessness

"(5) For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation." (TMA 1970, s.118(5))

"(2) A loss of tax is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss." (FA 2003, Sch 10, para 31A)

Meaning of careless

- Deemed carelessness (failing to inform HMRC of error)

"(6) Where—

(a) information is provided to Her Majesty's Revenue and Customs,

(b) the person who provided the information, or the person on whose behalf the information was provided, discovers some time later that the information was inaccurate, and

any loss of tax or situation brought about by the inaccuracy shall be treated for the purposes of this Act as having been brought about carelessly by that person." (TMA 1970, s.118(6))

"(3) Where—

(a) information is provided to Her Majesty's Revenue and Customs,

(b) the person who provided the information, or the person on whose behalf the information was provided, discovers some time later that the information was inaccurate, and

any loss of tax brought about by the inaccuracy is to be treated as having been brought about carelessly by that person." (FA 2003, Sch 10, para 31A)

- Deemed carelessness (failing to inform HMRC of error)

Loss brought about deliberately: 20 years

Income tax and CGT

(1A) An assessment on a person in a case involving a loss of income tax or capital gains tax—

(a) brought about deliberately by the person,

[...]

may be made at any time not more than 20 years after the end of the year of assessment to which it relates (subject to any provision of the Taxes Acts allowing a longer period)." (TMA 1970, s.36(1A)(a))

Corporation tax

"(2A) An assessment in a case involving a loss of tax—

(a) brought about deliberately by the company (or a related person),

[...]

may be made at any time not more than 20 years after the end of the accounting period to which it relates (subject to any provision of the Taxes Acts allowing a longer period)." (FA 1998, Sch 18, para 46(2A))

SDLT

"(2A) An assessment of a person to tax in a case involving a loss of tax—

(a) brought about deliberately by the purchaser or a related person,

[...]

may be made at any time not more than 20 years after the effective date of the transaction to which it relates" (FA 2003, Sch 10, para 31)

Not a criminal charge for human rights purposes

“(12) the fact that the consequences of deliberate non-compliance are more adverse than the consequences of careless non-compliance does not mean that those consequences have a criminal character or are penal;
(13) the reverse burden of proof on the taxpayer applies to every discovery assessment and does not produce the result that the discovery assessment involves a criminal charge or a penalty; and
(14) the combination of a 20 year time limit and a reverse burden of proof equally does not produce the result that there is a criminal charge or a penalty.” (Wood v. HMRC [2016] UKUT 346 (TCC), §56, Morgan J and Judge Herrington).

But the FTT (Wood v. HMRC [2015] UKFTT 282 (TC)) did not dismiss outright the possibility that the FTT Rules may allow the Tribunal to set aside the assessments if the appellant was “unduly adversely prejudiced by being required to continue the proceedings” after the death of the taxpayer (§92).

Related person (corporation tax)

"(2B) In this paragraph “related person”, in relation to a company, means—

(a) a person acting on behalf of the company, or

(b) a person who was a partner of the company at the relevant time." (FA 1998, Sch 18, para 46(2B))

Loss brought about deliberately: 20 years

Meaning of deliberate

Deliberate means intentional or knowing

"[43] We have no hesitation in concluding that the second of those interpretations is to be preferred, for the following reasons. First, it is the natural meaning of the phrase “deliberate inaccuracy”. Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely “inaccuracy”. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate.

...

[47] It may be convenient to encapsulate this conclusion by stating that, for there to be a deliberate inaccuracy in a document within the meaning of section 118(7) there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so." (HMRC v. Tooth [2021] UKSC 17)

“We agree with the approach in Auxilium Project Management that in order for the taxpayer to have acted deliberately, he must, first have submitted an incorrect document knowing that it did not represent the true position and, secondly he must have intended HMRC to accept the incorrect position as being correct.” (Baloch v. HMRC [2017] UKFTT 665 (TC), §123, Judge McKeever).

“I accept [the taxpayer’s] submission that what HMRC must do in order to satisfy the Tribunal to this effect is to show that Mr Munford had submitted his tax return actually knowing that he was not entitled to principal private residence relief.” (Munford v. HMRC [2017] UKFTT 19 (TC), §104).

“Also, in the context of this case, I agree with Mr Vallat who contends that “deliberately” means “intentionally” or “knowingly” (see eg Duckitt v Farrand [2001] Pens LR 155 at [9]).” (Tooth v. HMRC [2016] UKFTT 723 (TC), §49 Judge John Brooks).

Treating income as company income without doing anything to make it company income

“In general we do not consider that Dr Baloch could have believed that the income would become that of a company if he simply incorporated a company but took no steps actually to carry on the business in the company.” (Baloch v. HMRC [2017] UKFTT 665 (TC), §135, Judge McKeever).

Query whether a finding of Kittel knowledge amounts to a deliberate inaccuracy

"[36] It seemed to be common ground that the formulation used by the FTT in Auxilium was correct. In that case the FTT said:

“63. In our view, a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test. The question is not whether a reasonable taxpayer might have made the same error or even whether this taxpayer failed to take all reasonable steps to ensure that the return was accurate. It is a question of the knowledge and intention of the particular taxpayer at the time.

64. The test of deliberate inaccuracy should be contrasted with that of careless inaccuracy. A careless inaccuracy occurs due to the failure by the taxpayer to take reasonable care (see paragraph 3(1)(a) of Schedule 24 Finance Act 2007 and Harding v HMRC [2013] UKUT 575 (TCC) at [37]).”

[37] We agree with these comments of the FTT in Auxilium.

[38] In Tooth the Supreme Court considered the test of “deliberate inaccuracy” in section 118 Taxes Management Act 1970, which was required in order to enable HMRC to serve a “discovery assessment” within a 20 year window. It held that the natural meaning of the phrase “deliberate inaccuracy” meant a statement which, when it was made, was deliberately inaccurate, rather than a deliberate statement that was in fact inaccurate. “Deliberate” attached a requirement of intentionality to the whole of that which it described, namely “inaccuracy”. The required intentionality therefore attached both to the making of the statement and to its inaccuracy (§43).

[39] At §47, Lords Briggs and Sales, delivering the judgment of the Supreme Court, said:

“It may be convenient to encapsulate this conclusion by stating that, for there to be a deliberate inaccuracy in a document within the meaning of s118(7) there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so.”

[40] As the Court of Appeal held in E Buyer, it is not necessary for HMRC to plead or prove dishonesty in order to establish Kittel knowledge (i.e. that the taxpayer “knew or should have known” that the transactions were connected to fraud). Mr McDonnell argued that a finding of dishonesty was, however, an essential element of deliberate inaccuracy for the purposes of the penalty assessment, such that the findings in the 2017 Decision could not suffice to establish deliberate inaccuracy.

[41] We disagree. There is in our judgment no requirement for HMRC to plead or prove dishonesty when seeking to impose a penalty for deliberate inaccuracy under Schedule 24 FA 2007. As the FTT held in Auxilium, deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. We do not consider that anything said by the Supreme Court in Tooth calls that test into question.

...

[84] In addition, [the taxpayer] argued that the Appellant was entitled to take a “filing position” on its returns. As we understand it, a “filing position” is where a taxpayer makes a claim in a return (e.g. to a tax relief or an amount of the receipt) in circumstances where the relief (or the amount of the receipt) may be the subject of dispute. It does not, as we understand it, apply to a position where a taxpayer knows in advance that it has no entitlement to a relief. The fallacy in the argument in this case is that the effect of the 2017 Decision was (as we have found, above) that the Appellant knew that it was not entitled to claim an input tax deduction on its VAT returns but did so nonetheless. That is not “a filing position” but a deliberate inaccuracy. There was no evidence that the Appellant had adopted what Mr McDonnell described as a “filing position”" (C F Booth Limited v. HMRC [2022] UKUT 217 (TCC), Bacon J and Judge Brannan)

Meaning of deliberate

- May amount to finding of dishonesty

"[HMRC's Counsel] accepted that the finding in this case that Firm A acted deliberately in causing an inaccurate entry to be made in the 2007/08 tax return could be characterised as a finding of dishonesty. She also accepted that it was not open to the FTT to make a finding of dishonesty where such an allegation had not been pleaded or put to the witness in cross examination." (Danpal v. HMRC [2023] UKUT 86 (TCC), Judge Herrington and Judge Bowler)

- May amount to finding of dishonesty

- Blind eye knowledge: inference of knowledge from failure to investigate

Open to Tribunal to draw inference of knowledge conscious decision to refrain from taking steps to confirm existence of suspected facts

“But it is perhaps worth remarking, in the hope that it may further allay the anxiety of the council about the enforcement of licensing control of sex establishments, that it is always open to the tribunal of fact, when knowledge on the part of a defendant is required to be proved, to base a finding of knowledge on evidence that the defendant had deliberately shut his eyes to the obvious or refrained from inquiry because he suspected the truth but did not want to have his suspicion confirmed.” (Westminster CC v. Croyalgrange Ltd [1986] 2 All ER 353 at 359 per Lord Bridge - underlining added).

"[86] In the recent decision of Canada Square Operations Lt v Potter [2023] UKSC 41, Lord Reed observed that wilful or Nelsonian blindness corresponds to constructive knowledge and would provide the necessary intentionality for deliberate behaviour. I confirm therefore that the appellant's failure to notify his chargeability to tax was deliberate on the basis that his close involvement in the running of the pub business meant that he had actual or constructive knowledge that the wages he received from the Pub had not borne any income tax or NIC, which renders his failure to notify his chargeability 'deliberate'." (Hague v. HMRC [2024] UKFTT 139 (TC), Judge Poon)

"[37] It is HMRC’s burden to show, in accordance with the cases that they cited, that the behaviour of Atlas was deliberate. The two driving arguments they submitted to support this conclusion were the conversations on days 1 and 2 of the visit and the earlier assessment for VAT in 2014. As noted above, neither of these arguments are unequivocal and, even taken together, do not meet the burden of showing that Atlas had consciously and intentionally submitted incorrect returns; or consciously and intentionally chose not to find out how to make sure their returns were accurate." (Atlas Garages (Morpeth) Limited v. HMRC [2022] UKFTT 101 (TC), Judge McGregor)

"[82] We agree with the basic statement of the Tribunal in Auxilium set out at [50] above. We would also endorse the principle that if a taxpayer is aware of the existence of facts or circumstances which they know will or might render a return inaccurate and they choose not to investigate further in the light of those facts or circumstances in order to verify the accuracy of the return, then any inaccuracy which they would have uncovered if they had done so should be regarded as being a deliberate inaccuracy so far as the taxpayer is concerned. This is simply another way of expressing the proposition set out in Clynes v HMRC [2016] UKFTT 369 (TC) at [86]:

Our view is that, depending on the precise circumstances, an inaccuracy may also be held to be deliberate where it is found that the person consciously or intentionally chose not to find out the correct position, in particular, where the circumstances are such that the person knew that he should do so. A person cannot simply escape liability by claiming complete ignorance where the person clearly knew that he should have taken steps to ascertain the position. We view the case where a person makes such a conscious choice not to take such steps with the result that an inaccuracy occurs, as no less of a "deliberate inaccuracy" on that person's part than making the inaccuracy with full knowledge of the inaccuracy.

[83] From the documents before us, it appears that HMRC started their overt criminal investigation of Mr Arthur’s affairs with a raid on 15 August 2015. We consider, on a balance of probabilities, that Mrs Arthur became aware no later than that date that her husband’s conduct of their tax affairs was perhaps not as proper as it should have been. From that point on, she clearly knew that she should not simply continue to entrust the making of her returns to Mr Arthur without checking them herself." (Arthur v. HMRC [2022] UKFTT 216 (TC), Judge Poole)

“[112] The Tribunal in Clynes held that a behaviour can be deliberate if a person consciously or intentionally chooses not to find out the correct position.

[113] I find that the principles articulated by Lord Scott relating to blind-eye knowledge are applicable to the subjective assessment of knowledge for the purposes of Schedule 24, and are binding upon me. The fact that the relevant individual in had a professional accounting qualification was not relevant to the decision of the Tribunal, rather it was the fact that the individual consciously and intentionally chose not to find out the correct position.

...

[115] Although Mr Bashir may not have filled-in the body of the VAT 7, he does not dispute that he signed and dated it. I find that either he must have had actual knowledge of its contents, or, alternatively, he deliberately refrained from reading it. He was an experienced business person used to dealing with formal documents, and knowing that he should read them before signing them. If in the circumstances of this case he decided not to read the VAT 7 before signing it, I find that his decision not to read it could only have been made - not because he was stupid, naïve or careless - but because, in his own secret mind, he knew it was likely there was something wrong, and if he read it, it would no longer be his suspecting it, but his knowing it.” (Chohan Management Limited v. HMRC [2021] UKFTT 196 (TC), Judge Aleksander)

- Blind eye knowledge: inference of knowledge from failure to investigate

- Query whether it includes recklessness

"[112] As a matter of the ordinary use of language, the adjectives “deliberate” and “reckless” have different meanings. As one would expect, their ordinary meanings are reflected in dictionary definitions. For example, the Concise Oxford Dictionary defines “deliberate” as meaning “done consciously and intentionally”, and “reckless” as meaning “without thought or care for the consequences of an action”. Those definitions capture the distinction between the two words in ordinary speech."

[...]

[153] For all these reasons, the reasoning of the Court of Appeal in relation to section 32(2) cannot be accepted. “Deliberate”, in section 32(2), does not include “reckless”. Nor does it include awareness that the defendant is exposed to a claim. As Lord Scott said in Cave at para 58, the words “deliberate commission of a breach of duty” are clear words of English. They mean, as he added at para 61, that the defendant “knows he is committing a breach of duty”." (Canada Square Operations Ltd v. Potter [2023] UKSC 41)

"[47] It may be convenient to encapsulate this conclusion by stating that, for there to be a deliberate inaccuracy in a document within the meaning of section 118(7) there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so." (HMRC v. Tooth [2021] UKSC 17)

"[52] First, the starting point is the natural meaning of “deliberate” acts. This connotes consciously performing an act intending its consequences. It involves a different state of mind to recklessness. For reasons already stated, the relevant act in this case is that of causing injury, so its natural meaning in the present context is carrying out an act intending to cause injury.

...

[55] Fourthly, Mr McBrearty has not been able to show us any case in which “deliberate” has been held to include recklessness.

[56] Fifthly, if, exceptionally if not uniquely, deliberate was intended to include recklessness, one would expect it to be made clear what that means in this context. As is well known, and the cases we have been referred to illustrate, recklessness may be defined in various different ways and the policy provides no clue as to what it should be taken to mean in relation to “deliberate acts”." (Burnett v. International Insurance Company of Hanover Limited [2021] UKSC 12)

"[7] In summary, HMRC submitted that, properly analysed, the findings of fact were findings that CPR had actual or, at the very least, blind-eye knowledge that the returns submitted contained inaccuracies. Ms Robinson, who appeared for HMRC, was very clear that HMRC had not advanced any case on recklessness before the FTT and did not invite us to consider whether recklessness on the part of a taxpayer might satisfy the 'deliberate inaccuracy' test. (We record that HMRC's acceptance that this is the test goes no further than this particular case)." (CPR Commercials Limited v. HMRC [2023] UKUT 61 (TCC), Miles J and Judge Sinfield)

[82] There is no direct or definitive authority that the Tribunal has been able to find as to whether reckless behaviour can be equated with deliberate behaviour in the context of Schedule 24. The Tribunal does consider that AS’s failure to actively engage with his responsibilities as a director of a limited company and his blind and unequivocal reliance on his accountants was reckless. Prior to incorporation AS and MS were liable personally for the debts of the business. Incorporation bought the benefit of limited liability. Becoming a director of a limited company brings with it a range of fiduciary duties which it is important to understand. Those fiduciary duties are part of what underpin the benefits of corporate status. AS made no effort to understand what incorporation meant for the business or for him. Significant and material errors were made in the accounts and the letters of representation he signed and for which, as a matter of law, he is responsible. To absolve that responsibility, which rests with him, because he relied on Doshi & Co would create a loophole for unscrupulousness because no one would then ever be responsible to taxpayers generally for gross and obvious mistakes made in accounts.

[83] The Tribunal considers that, at least in the circumstances of this case, it is right that LLL be held responsible for the failures of its accountant and, if appropriate, to take action against Doshi & Co for those failures. Mr Davidson concluded that as regards the accounting treatment of Hazon Way expenditure the accounts was wholly inappropriate and gave rise to materially inaccurate accounts. In oral evidence Mr Davidson stated that, in his view, the accounts did not represent a true and fair view of the position of the company. The error was material. As of 31 July 2011, the debit to the sum shown as other debtors (which should have been debited to the director’s current account) was £178,739 in the context of capital and reserves as at that date of £189,379. It is wrong to expect the state to run the risk that loss of tax arises from gross and reckless incompetence and a failure to produce and sign off accounts which, in the view of the expert witness in this case, do not represent a true and fair view of a company’s trading or balance sheet." (La Luz Residential Home Ltd v. HMRC [2022] UKFTT 100 (TC), Judge Amanda Brown QC)

"[52] Mrs Skipper also referred us to the First-tier Tribunal cases of Clynes v HMRC [2016] UKFTT 369 (TC) (to the effect that an inaccuracy may be deliberate where it is found that a person consciously or intentionally chose not to find out the correct position, particularly where the circumstances are such that the person knew that he should do so) and Miah v HMRC [2016] UKFTT 644 (TC) (to the effect that an action was deliberate if it had been “thought about”).

[53] It follows from these authorities that, for the purposes of penalties as distinct from the time limits, a deliberate inaccuracy occurs for the purposes of Schedule 24 when a taxpayer knowingly provides HMRC with a document that contains an error with an intention that HMRC rely upon it as an accurate document. Further, an inaccuracy can in some circumstances be held to be deliberate where it is found that the person consciously or intentionally chooses not to find out the correct position, in particular, where the person clearly knew that he should have taken steps to ascertain the position." (Baig v. HMRC [2020] UKFTT 318 (TC), Judge Richard Chapman QC)

“We consider that deliberate in this contest means that the taxpayer made the deductions or omitted the income while knowing she was not entitled to do so or being reckless as to whether she was entitled to do so. We find that HMRC have not proved that the understatement of the property income was deliberate.” (Vowles v. HMRC [2017] UKFTT 704 (TC), §128, Judge Mosedale).

- Query whether it includes recklessness

- Difference between knowledge, wilful blindness and recklessness

Reckless not the same as blind-eye knowledge

"As already explained, we do not express any view on whether an inaccuracy that is attributable to recklessness is deliberate for the purposes of the penalty regime because we were not addressed on that point. We determine this appeal on the basis that the deliberate inaccuracy penalty appeal only applies in this case if CPR provided VAT returns to HMRC knowing that they contained errors. In our view, the conclusion that CPR was "at least reckless" is not a finding that CPR had actual or blind eye knowledge of any error in the VAT returns and, accordingly, did not support a finding that CPR was liable to a penalty for deliberate inaccuracy." (CPR Commercials Limited v. HMRC [2023] UKUT 61 (TCC), Miles J and Judge Sinfield)

Recklessness is taking an unjustified risk despite being aware of it. Wilful blindness involves the conscious decision to refrain from taking steps to confirm the existence of the suspected risk/fact

"[41] For the reasons I have given I would allow this appeal and quash the appellants' convictions. I would answer the certified question obliquely, basing myself on clause 18(c) of the Criminal Code Bill annexed by the Law Commission to its Report “A Criminal Code for England and Wales Volume 1: Report and Draft Criminal Code Bill” (Law Com No 177, April 1989):
“A person acts recklessly within the meaning of section 1 of the Criminal Damage Act 1971 with respect to —
(i) a circumstance when he is aware of a risk that it exists or will exist;
(ii) a result when he is aware of a risk that it will occur;
and it is, in the circumstances known to him, unreasonable to take the risk.”" (R v. G [2003] UKHL 50, Lord Bingham)

“It is common ground that the judge's direction and the route to verdict contained a clear misdirection as to the law. 'Knowingly' is something different in law from 'recklessness'. Knowingly connotes something more than mere recklessness. In simple terms, one can be said to know something if one is absolutely sure that it is so. Being reckless, on the other hand, means merely taking unjustified risks (see [2003] UKHL 50; Blackstone para A2.6 and A2.14).” (R v. Godir [2018] EWCA Crim 2294)

- Difference between knowledge, wilful blindness and recklessness

- Deemed deliberateness (deliberate inaccuracy in document)

“In this Act references to a loss of tax or a situation brought about deliberately by a person include a loss of tax or a situation that arises as a result of a deliberate inaccuracy in a document given to Her Majesty’s Revenue and Customs by or on behalf of that person.” (TMA 1970, s.118(7)).

"(4) References to a loss of tax brought about deliberately by a person include a loss of tax brought about as a result of a deliberate inaccuracy in a document given to Her Majesty's Revenue and Customs by or on behalf of that person." (FA 2003, Sch 10, para 31A)

Can include conduct falling well short of fraud

"[40] It must be acknowledged that section 118(7) does therefore open the way to a discovery assessment with a 20-year time limit by reason of conduct by the taxpayer that falls well short of a deliberate under-declaration of tax, so that it might be hard to describe such conduct as fraudulent, using the language of section 29(4) in force before 2010. But the language of section 118(7) is clear and unambiguous in having the effect described above. Suppose for example that Mr Tooth had entered the employment-related loss in the partnership box without providing any explanation of its true source and nature, intending the Revenue to believe that it derived from a partnership business and occurred during the 2007-8 tax year. It would still have generated a negative tax liability for 2007-8 in the amount which he genuinely believed to be true. But if that negative amount (and the consequent insufficiency) was the result of entering the loss in the partnership box, as a partnership loss, (rather than elsewhere in the return) then we consider that the deliberate limb of the first condition in section 29(4) would have been fulfilled. Such a presentation in his return would have misled the Revenue from having a full understanding of the information relevant to assessing his self-assessment." (HMRC v. Tooth [2021] UKSC 17)

Must know the document was inaccurate and intend to mislead

"[42]...The question is whether it means (i) a deliberate statement which is (in fact) inaccurate or (ii) a statement which, when made, was deliberately inaccurate. If (ii) is correct, it would need to be shown that the maker of the statement knew it to be inaccurate or (perhaps) that he was reckless rather than merely careless or mistaken as to its accuracy.

[43] We have no hesitation in concluding that the second of those interpretations is to be preferred, for the following reasons. First, it is the natural meaning of the phrase “deliberate inaccuracy”. Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely “inaccuracy”. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate.

...

Even if we could have been persuaded, contrary to our conclusion above, that by some tunnel-vision approach to the interpretation of parts of Mr Tooth’s return, ignoring all context, it contained an inaccuracy, we would not have been satisfied that it was deliberate in the sense, explained above, that Mr Tooth or his advisors knew that the relevant statements were inaccurate and intended thereby to mislead the Revenue. Ms McCarthy submitted that all that was achieved by the extensive passages in the white spaces on Mr Tooth’s return, referred to above, was to explain why the statements in the relevant partnership boxes were deliberately inaccurate. That cannot be right. Reading the return as a whole, Mr Tooth and his advisors did their best, in the context of an intractable online form which did not appear to enable them to do it more directly, to explain the employment-related and scheme-derived basis of his ambitious claim to extinguish his 2007-8 tax liability by an admittedly contentious carry-back. It is unnecessary in this context to decide whether they had no alternative but to do it that way, a point briefly but inconclusively argued in this court, nor whether the requisite causative link between the alleged inaccuracy and the insufficiency of tax was established." (HMRC v. Tooth [2021] UKSC 17)

Interpret the document as a whole

"[51] The Revenue cannot in our view have it both ways. If they sensibly include ample white spaces in their approved form of online returns so as to ensure that the taxpayer is not constrained by the limitations of the boxes for figures from making a correct and complete return, then they cannot thereafter assert, for the purpose of advancing a non-contextual interpretation of one or more boxes, that their computer cannot read what is written on the white spaces. This must be a fortiori true where, as in the present case, the white space used by Mr Tooth to provide a full and frank explanation of the true meaning of the supposedly offending insertions in the partnership boxes was to be found immediately adjacent to those boxes." (HMRC v. Tooth [2021] UKSC 17)

- Deemed deliberateness (deliberate inaccuracy in document)

Failure to notify chargeability: 20 years

Income tax and CGT

"(1A) An assessment on a person in a case involving a loss of income tax or capital gains tax—

[...]

(b) attributable to a failure by the person to comply with an obligation under section 7,

[...]

Corporation tax

"(2A) An assessment in a case involving a loss of tax—

[...]

(b) attributable to a failure by the company to comply with an obligation under paragraph 2,

[...]

Unnecessary to consider what the return would have shown

“[246] Thus speculation as to what the contents of a return would have been would be inconsistent with the general nature of the self-assessment system. The simple question raised by para 31(2A) Sch 10 is: did the purchaser fail to comply with an obligation under s 76(1) FA 2003?

[247] If such a failure is established, and it is also established that SDLT would have been payable in accordance with the obligation in s 76(1) FA 2003 as supplemented by s 76(3), then both of the tests imposed by para 31(2A) Sch 10 are satisfied and the extended time limit of 20 years for making a discovery assessment applies….

[249] My conclusion is that what the attribution test under para 31(2A)(b) Sch 10 requires is consideration of the return and payment which the purchaser should have made, based on the legislation as subsequently interpreted in tribunal and court decisions. Thus it is not necessary to look at the question of what the purchaser may or may not have thought at the time, or to review the advice, if any, which the purchaser may have taken concerning possible liability to SDLT. (The “practice generally prevailing” exemption afforded by para 30(5) Sch 10 is only available where a return has been made; see para 30(1).)” (Crest Nicholson (South East) Ltd v. HMRC [2017] UKFTT 136 (TC), §§246 – 247…249, Judge John Clark).

Acceptance of voluntary return by HMRC does not affect time limit for assessment

"(5) Nothing in this section affects sections 34 to 36 or any other provisions of the Taxes Acts specifying a period for the making or delivering of any assessment (including self-assessment) to income tax or capital gains tax." (TMA 1970, s.12D(5))

"(5) Nothing in this paragraph affects paragraph 46 or any other provisions of the Taxes Acts specifying a time limit for the making of an assessment." (FA 1998, Sch 18, para 20A(5))

Failure to notify chargeability: 20 years

- No failure if reasonable excuse

See TMA s.118(2) and A3: Reasonable excuse.

"[40] In summary, the time limit for HMRC to raise assessments under s29 TMA for loss of tax is four years after the end of the year of assessment to which it relates unless the loss was brought about carelessly, in which case the time limit is six years, or the loss is attributable to a failure to notify liability to income tax under s7 TMA, in which case the time limit for making an assessment is 20 years. However, HMRC cannot rely on the extended six-year time limit under s36(1) unless the person had failed to take reasonable care to avoid the loss, and are not able to rely on the 20-year time limit under s36(1A) if the person had a reasonable excuse for not notifying their liability to income tax.

...

[87] Was it was objectively reasonable, in the circumstances of the case, for Mr Brown to have been unaware of the requirement to notify HMRC that he had become liable to HICBC, taking into account the fact that HICBC did not exist when Mrs Brown claimed child benefit and the absence of any subsequent communications, either by way of a general campaign aimed at those in their position or direct correspondence, in the tax years under appeal? We have not found this an easy case to decide. But, on balance, in the particular circumstances of this case, we find that it was objectively reasonable, in the circumstances of the case, for Mr Brown to have been unaware of the requirement to notify HMRC that he had become liable to HICBC for the 2014/15 tax year. We also find that, as nothing changed in relation to Mr Brown's awareness of his obligation to notify until HMRC wrote to him in February 2021. We find that Mr Brown has established that he had a reasonable excuse for failing to notify and did not fail to take reasonable care in relation to that and the subsequent tax years. Accordingly, the assessments in relation to the 2014/15, 2015/16, and 2016/17 tax years (had they been valid) were made out of time." (Brown v. HMRC [2024] UKFTT 245 (TC), Judge Aleksander)

"[70] HMRC’s SoC sets out at [62] that the time limit for issuing an assessment where a person has failed to notify is set out in s36(1A)(b) TMA 1970 as 20 years, stating that all assessments have been issued within this time limit. The SoC makes no reference to s118(2) and goes on to state at [66] that “there is simply no “reasonable excuse” or other provision, such as “special circumstances”, in the legislation for amending or cancelling assessments issued under Section 29”. This is not correct. By virtue of s118(2), HMRC cannot rely on this 20 year time limit if Mr Burchett establishes a reasonable excuse for not notifying his liability to tax within six months of the end of each relevant tax year and, after the excuse ceased, did the required action (ie notify) without unreasonable delay. Ms Halfpenny acknowledged this; it was HMRC’s case that there was no such reasonable excuse." (Burchett v. HMRC [2024] UKFTT 121 (TC), Judge Zaman)

"[56] KJ’s only source of income is the dividends. On the basis that she was only liable to tax on the dividends paid there was no liability to notify. As identified on the dividend voucher the dividends were paid after deduction of basic rate tax. The dividends paid were all amounts less than the threshold for higher rate income tax. However, on the hypothesis that income tax was due on the full declared dividend KJ was liable to notify. In such circumstances the provisions of section 36(1A) TMA would apply unless, by virtue of section 118(2) TMA, KJ could show that she had a reasonable excuse for the failure to notify." (Jay v. HMRC [2022] UKFTT 420 (TC), Judge Amanda Brown KC)

"“Discovery” assessment where loss of tax due to failure to notify liability to tax.

Where the person has a reasonable excuse for the FTN with no unreasonable delay they are deemed not to have failed

Time Limit
20 years from the end of the year of assessment or 4 years from the end of the year of assessment where the person has a qualifying reasonable excuse." (CH56100)

- No failure if reasonable excuse

Failure to submit SDLT return: 20 years

"(2A) An assessment of a person to tax in a case involving a loss of tax—

[...]

(b) attributable to a failure by the person to comply with an obligation under section 76(1) or paragraph 3(3)(a), 4(3)(a) or 8(3)(a) of Schedule 17A, …2

[...]

may be made at any time not more than 20 years after the effective date of the transaction to which it relates." (FA 2003, Sch 10, para 31)

Failure to submit SDLT return: 20 years

Failure to comply with obligations regarding tax avoidance schemes: 20 years

Income tax and CGT

"(1A) An assessment on a person in a case involving a loss of income tax or capital gains tax—

[...]

(c) attributable to arrangements in respect of which the person has failed to comply with an obligation under section 309, 310 or 313 of the Finance Act 2004 (obligation of parties to tax avoidance schemes to provide information to Her Majesty's Revenue and Customs), or

(d) attributable to arrangements which were expected to give rise to a tax advantage in respect of which the person was under an obligation to notify the Commissioners for Her Majesty's Revenue and Customs under section 253 of the Finance Act 2014 (duty to notify Commissioners of promoter reference number) but failed to do so,

Corporation tax

"(2A) An assessment in a case involving a loss of tax—

[...]

(c) attributable to arrangements in respect of which the company has failed to comply with an obligation under section 309, 310 or 313 of the Finance Act 2004 (obligation of parties to tax avoidance schemes to provide information to Her Majesty's Revenue and Customs), or

(d) attributable to arrangements which were expected to give rise to a tax advantage in respect of which the company was under an obligation to notify the Commissioners for Her Majesty's Revenue and Customs under section 253 of the Finance Act 2014 (duty to notify Commissioners of promoter reference number) but failed to do so.

SDLT

"(2A) An assessment of a person to tax in a case involving a loss of tax—

[...]

may be made at any time not more than 20 years after the effective date of the transaction to which it relates." (FA 2003, Sch 10, para 31)

Failure to comply with obligations regarding tax avoidance schemes: 20 years

Attribution of conduct: person acting on behalf of taxpayer

"(1B) In subsections (1) and (1A), references to a loss brought about by the person who is the subject of the assessment include a loss brought about by another person acting on behalf of that person." (TMA 1970, s.36(1B))

For corporation tax see above: FA 1998, Sch 18, para 46(2A) and (2B)

SDLT

(2A) An assessment of a person to tax in a case involving a loss of tax—

(a) brought about deliberately by the purchaser or a related person,

[...]

(6) In this paragraph “related person”, in relation to a purchaser, means—

(a) a person acting on behalf of the purchaser, or

(b) a person who was a partner of the purchaser at the relevant time." (FA 2003, Sch 10, para 31)

Attribution of conduct: person acting on behalf of taxpayer

- Adviser is not person acting on behalf

"[122]...We agree with the FTT that the legal test to be applied is the test stated in Bessie Taube at [93]:

"… In our view, the expression "person acting on…behalf" is not apt to describe a mere adviser who only provides advice to the taxpayer or to someone who is 30 acting on the taxpayer's behalf. In our judgment the expression connotes a person who takes steps that the taxpayer himself could take, or would otherwise be responsible for taking. Such steps will commonly include steps involving third parties, but will not necessarily do so. Examples would in our view include completing a return, filing a return, entering into correspondence with HMRC, 35 providing documents and information to HMRC and seeking external advice as to the legal and tax position of the taxpayer. The person must represent, and not merely provide advice to, the taxpayer." [123] Mr Gordon cited Gaspet Ltd v Elliss [1985] STC 572 (Peter Gibson J) and [1987] STC 362 (Court of Appeal) for the proposition that “on behalf of” is narrower 40 than “for the benefit of” or “in the interest of”. We agree with that proposition. A similar conclusion was reached in R (on the application of S) v Social Security Commissioner [2010] PTSR 1785, approved by the Court of Appeal in Rochdale MBC v Dixon [2012] PTSR 1336. These last two cases were not cited to us but as they are in line with the authority of Gaspet Ltd v Elliss, which was cited, it was not 45 necessary to invite submissions in relation to them." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)

- Adviser is not person acting on behalf

- Seller of scheme is not acting on behalf

"As regards the first particular of carelessness put forward by HMRC, the matter complained of relates to Montpelier’s role as the seller of the scheme or, at most, an adviser to Mr Hicks. In that role, Montpelier was not acting on behalf of Mr Hicks for the purposes of section 29(4)." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)

- Seller of scheme is not acting on behalf

- Completing and filing tax returns is acting on behalf

"[49] We are entirely satisfied that McKenzie Knight was “acting on behalf of” Dr Rizvi so far as these matters are concerned. Although they gave Dr Rizvi some advice (introducing him to the idea of making EIS investments and then suggesting particular investment opportunities), their role went far beyond that. They are identified on his tax returns as his agent and, as Dr Rizvi has explained, they completed his tax returns for him on the basis of information he supplied. They represented, and did not merely provide advice to, Dr Rizvi." (Rizvi v. HMRC [2023] UKFTT 124 (TC), Judge Baldwin)

"[92] It was accepted at the hearing by Mr Callen that Mr Bevis was a person acting on his behalf at the relevant time. I am conscious of my duty towards a litigant in person and have considered whether this was an appropriate concession from Mr Callen to make. I am entirely satisfied that it was. Mr Bevis very clearly satisfied the Bessie Taube test: he took the steps that Mr Callen himself could take, or would otherwise be responsible for taking in completing tax returns for Mr Callen, filing those returns, entering into correspondence with HMRC, providing documents and information to HMRC and seeking advice from Montpelier as to the tax position of Mr Callen. He represented Mr Callen." (Callen v. HMRC [2022] UKFTT 40 (TC), Judge Bowler)

- Completing and filing tax returns is acting on behalf

- Corresponding with HMRC is acting on behalf

"[138] Although ELS had been acting on behalf of all the Appellants in relation to the scheme up to and including submitting the returns and sending the disclosure letter, there was no ongoing retainer and I conclude that ELS was not advising the Appellants or acting on behalf of the Appellants when the retrospective legislation was introduced.

[139] ELS did however advise the Shaw Appellants about the need (or lack of need) to submit amended returns and corresponded with HMRC on behalf of the Shaws who were described 29 in the 8 October 2013 letter as “clients”. I consider that ELS was acting on behalf of the Shaw Appellants when they corresponded with HMRC about HMRC’s 5 September 2013 letter. It is therefore relevant to consider the issue of whether ELS were negligent in advising there was no need to amend the returns and whether that caused the insufficiency." (G C Field & Sons Ltd v. HMRC [2021] UKFTT 297 (TC), Judge McKeever)

Query whether the negligence/fraud has to be in the course of acting on behalf.

- Corresponding with HMRC is acting on behalf

- Providing figures for tax return: uncertain

"[155] ... If the question as to the role of Montpelier were to be decisive of this case, we feel that we would need to investigate more thoroughly what precisely Montpelier did in relation to the completion of the tax returns. We might also need to consider whether there could be circumstances in which a third party who carelessly provides inaccurate information to a taxpayer to be used in a return could be regarded as acting on behalf of the taxpayer for the purposes of section 29(4). In view of the fact that these points are not necessary for our decision, in the light of our earlier conclusions, we do not think it appropriate for us to go further." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)

- Providing figures for tax return: uncertain

- LLP not acting on behalf of members in arranging for external advice to be provided

"[439] The UK LLP obtained external advice from PwC as to the tax position of the individual Appellants. However, the UK LLP did not represent the individual Appellants. It merely arranged for advice to be provided to the taxpayers. We consider that this is too far removed to fall within the types of active engagement described in Hicks as falling within the term "acting on his behalf". HMRC have not argued that PwC was careless." (Boston Consulting Group UK LLP v. HMRC [2024] UKFTT 84 (TC), Judge Bowler)

- LLP not acting on behalf of members in arranging for external advice to be provided

Attribution of conduct: partners

"(2) Where the person mentioned in subsection (1) or (1A) (“the person in default”) carried on a trade, profession or business with one or more other persons at any time in the period for which the assessment is made, an assessment in respect of the profits or gains of the trade, profession or business in a case mentioned in subsection (1A) or (1B) may be made not only on the person in default but also on his partner or any of his partners." (TMA 1970, s.36(2))

For corporation tax see above: FA 1998, Sch 18, para 46(2A) and (2B)

SDLT

(2A) An assessment of a person to tax in a case involving a loss of tax—

(a) brought about deliberately by the purchaser or a related person,

[...]

(6) In this paragraph “related person”, in relation to a purchaser, means—

(a) a person acting on behalf of the purchaser, or

(b) a person who was a partner of the purchaser at the relevant time." (FA 2003, Sch 10, para 31)

Attribution of conduct: partners

Attribution of conduct: European Economic Interest Groups

"(4) Any act or omission such as is mentioned in section 98B below on the part of a grouping (as defined in that section) or member of a grouping shall be deemed for the purposes of subsections (1) and (1A) above to be the act or omission of each member of the grouping." (TMA 1970, s.36(4))

"An act or omission such as is mentioned in section 98B of the Taxes Management Act 1970 (European Economic Interest Groupings: acts or omissions attracting penalties) on the part of a grouping, or a member of a grouping, is treated as the act or omission of each member of the grouping for the purposes of—

paragraphs 43 and 46(2) (assessment in case of fraud or negligence), and

paragraphs 61(2) and 65(1) (consequential claims in case of such an assessment)." (FA 1998, Sch 18, para 91)

Attribution of conduct: European Economic Interest Groups

Offshore matters within the requirement to correct rules: 5 April 2021

"(1) This paragraph applies where—
(a) at the end of the tax year 2016-17 a person has relevant offshore tax non-compliance to correct, and
(b) the last day on which it would (disregarding this paragraph) be lawful for HMRC to assess the person to any offshore tax falls within the period beginning with 6 April 2017 and ending with 4 April 2021.
(2) The period in which it is lawful for HMRC to assess the person to the offshore tax is extended by virtue of this paragraph to end with 5 April 2021.
(3) In this paragraph “offshore tax”, in relation to any relevant offshore tax non-compliance, means tax corresponding to the offshore PLR in respect of the non-compliance." (FA(No.2)2017, Sch 18, para 26)

Not impliedly repealed by s.36A

"[59] Therefore we do not accept that section 80(5) is automatically rendered futile by the interaction with the requirement to correct rules. Since we find that there is a functional effect of section 80(5), we also find that there is not an inconsistency between the two rules that could give rise to the need to consider implied repeal." (Scott v. HMRC [2023] UKFTT 360 (TC), Judge McGregor)

Offshore matters within the requirement to correct rules: 5 April 2021

Offshore matters and transfers: at least 12 years

"(1) This section applies in a case involving a loss of income tax or capital gains tax, where—

(a) the lost tax involves an offshore matter, or

(b) the lost tax involves an offshore transfer which makes the lost tax significantly harder to identify.

(2) An assessment on a person (“the taxpayer”) may be made at any time not more than 12 years after the end of the year of assessment to which the lost tax relates.

This is subject to section 36(1A) above and any other provision of the Taxes Acts allowing a longer period." (TMA 1970, s.36A(1) - (2))

Meaning of "involves an offshore matter"

"(3) Lost income tax or capital gains tax “involves an offshore matter” if it is charged on or by reference to—

(a) income arising from a source in a territory outside the United Kingdom,

(b) assets situated or held in a territory outside the United Kingdom,

(d) activities carried on wholly or mainly in a territory outside the United Kingdom, or

(e) anything having effect as if it were income, assets or activities of a kind described above." (TMA 1970, s.36A(3))

Assets

"(10) In this section “assets” has the meaning given in section 21(1) of the 1992 Act, but also includes sterling." (TMA 1970, s.36A(10))

Meaning of "involves an offshore transfer"

"(4) Lost income tax or capital gains tax “involves an offshore transfer” if—

(a) it does not involve an offshore matter, and

(b) the income or the proceeds of the disposal on or by reference to which it is charged, or any part of the income or proceeds, is transferred to a territory outside the United Kingdom before the relevant date." (TMA 1970, s.36A(4))

Relevant date

(5) In subsection (4) “relevant date” means—

(a) in a case where the taxpayer (or a person acting on the taxpayer's behalf) delivered a return under the Taxes Acts to HMRC for the year of assessment to which the lost tax relates and in which information relating to the lost tax was required to be provided, the date on which the return was delivered, and

(b) in any other case, 31 January in the year of assessment after that to which the lost tax relates;

references to income or proceeds transferred include references to assets derived from or representing the income or proceeds." (TMA 1970, s.36A(5))

Meaning of "significantly harder to identify"

"(6) Where lost tax involves an offshore transfer, the cases in which the transfer makes the lost tax significantly harder to identify include any case where, because of the transfer—

(a) HMRC was significantly less likely to become aware of the lost tax, or

(b) HMRC was likely to become aware of the lost tax only at a significantly later time." (TMA 1970, s.36A(6))

Extended time limit disapplied if HMRC had relevant overseas information that should have led to assessment within the time limit otherwise applying

"(7) But an assessment may not be made under subsection (2) if—

(a) before the time limit that would otherwise apply for making the assessment, HMRC received relevant overseas information on the basis of which HMRC could reasonably have been expected to become aware of the lost tax, and

(b) it was reasonable to expect the assessment to be made before that time limit." (TMA 1970, s.36A(7))

Relevant overseas information

"(8) In subsection (7)(a) “relevant overseas information” means information which is provided to HMRC by an authority in a territory outside the United Kingdom under—

(a) any provision of EU law relating to any tax, or

(b) an agreement to which the United Kingdom and that territory are parties, with or without other parties." (TMA 1970, s.36A(8))

Extended time limit disapplied in relation to transfer pricing adjustments

"(9) An assessment may also not be made under subsection (2) to the extent that liability to the lost tax arises as a result of an adjustment under Part 4 of TIOPA 2010 (transfer pricing adjustments)." (TMA 1970, s.36A(9))

Attribution of conduct: partners

"(11) Section 36(2) to (3A) applies for the purposes of this section (as if references to section 36(1) or (1A) were to subsection (1) of this section)" (TMA 1970, s.36A(9))

Offshore matters and transfers: at least 12 years

Taxpayer dies: assessment must be made within 4 years

"(1) For the purpose of the charge of tax on the executors or administrators of a deceased person in respect of the income, or chargeable gains, which arose or accrued to him before his death, the time allowed by section 34, 35, 36 or 36A above shall in no case extend more than 4 years after the end of the year of assessment in which the deceased died." (TMA 1970, s.40(1))

"(4) Where the purchaser has died—

(a) any assessment on the personal representatives of the deceased must be made within 4 years after his death, and

(b) an assessment shall not be made by virtue of sub-paragraph (2) in respect of a transaction of which the effective date was more than six years before the death." (FA 2003, Sch 10, para 31)

“The fact that the disputed assessments were issued before, rather than after, Mr Wood’s death is, I consider, not merely a minor issue of timing; rather, it highlights that Mr Wood was aware of HMRC’s concerns and had promised to address them by production of the Disclosure Report. The disputed assessments were raised on a protective basis because the Disclosure Report was delayed, and the liabilities under those assessments crystallised (subject to the appeal) before Mr Wood’s death. That is, I consider, a different situation from that envisaged by s 40, where Parliament has determined to limit the period susceptible to assessment where the assessments are not raised until after the taxpayer’s death and thus the personal representatives are tasked with administering a liability of the estate that the deceased taxpayer may have been unaware of.” (Wood v. HMRC [2015] UKFTT 282 (TC), §91).

Tax

"(3) In this section “tax” means income tax or capital gains tax." (TMA 1970, s.40(3))

Taxpayer dies: assessment must be made within 4 years

Taxpayer dies: assessments relating to careless or deliberate conduct may be made within 4 years

"(2) In a case involving a loss of tax brought about carelessly or deliberately by a person who has died (or another person acting on that person's behalf before that person's death), an assessment on his personal representatives to tax for any year of assessment ending not earlier than six years before his death may be made at any time not more than 4 years after the end of the year of assessment in which he died." (TMA 1970, s.40(2))

Attribution of conduct: European Economic Interest Groupings

"(4) Any act or omission such as is mentioned in section 98B below on the part of a grouping (as defined in that section) or member of a grouping shall be deemed for the purposes of subsection (2) above to be the act or omission of each member of the grouping." (TMA 1970, s.40(4))

Taxpayer dies: assessments relating to careless or deliberate conduct may be made within 4 years

Assessment necessary as a result of allowing a consequential claim: 1 year

"(4) Where it is necessary to make any adjustment by way of an assessment on any person—

(a) in order to give effect to a consequential claim, or

(b) as a result of allowing a consequential claim,

the assessment is not out of time if it is made within one year of the final determination of the claim.

For this purpose a claim is not taken to be finally determined until it, or the amount to which it relates, can no longer be varied, on appeal or otherwise.

(5) In subsection (4) above “consequential claim” means any claim, supplementary claim, election, application or notice that may be made or given under section 36(3), 43(2), 43A or 43D(6) (as it applies by virtue of subsection (1) or (2) above or otherwise)." (TMA 1970, s.43C(4) - (5))

Assessment necessary as a result of allowing a consequential claim: 1 year

Assessment arising out of a claim for overpaid tax: prior to final determination of claim

"(1) This paragraph applies where—

(a) a claim is made under this Schedule,

(b) the grounds for giving effect to the claim also provide grounds for a discovery assessment or determination on the claimant in respect of any chargeable period, and

(2) “Discovery assessment or determination” means—

(a) an assessment under section 29(1), or

(b) a discovery assessment or discovery determination under Schedule 18 to the Finance Act 1998 (company tax return etc).

(3) The following are relevant restrictions—

(a) the conditions in section 29(3) to (5),

(b) the restrictions in paragraphs 42 to 45 of Schedule 18 to the Finance Act 1998, and

(4) Where this paragraph applies—

(a) the relevant restrictions are to be disregarded, and

(b) the discovery assessment or determination is not out of time if it is made before the final determination of the claim." (TMA 1970, Sch 1AB, para 6)

For corporation tax see FA 1998, Sch 18, para 51E and 51F to the same effect.

Meaning of final determination

"(2) For the purposes of this Schedule, a claim is not finally determined until it, or the amount to which it relates, can no longer be varied (whether on appeal or otherwise)" (TMA 1970, Sch 1AB, para 9(2))

Discovery amendment of partnership return: same rule

"(1) This paragraph applies where—

(a) a claim is made under this Schedule,

(b) the claimant is one of two or more persons carrying on a trade, profession or business in partnership,

(c) the grounds for giving effect to the claim also provide grounds for amending, under section 30B(1) (discovery of loss of tax from partnership), a return made by the partnership or any of the partners in respect of any period, and

(d) such an amendment could be made but for a relevant restriction.

(2) The following are relevant restrictions—

(a) the conditions in section 30B(4) to (6), and

(b) the expiry of a time limit for making an assessment under that section.

(3) Where this paragraph applies—

(a) the relevant conditions are to be disregarded, and

(b) the amendment is not out of time if it is made before the final determination of the claim." (TMA 1970, Sch 1AB, para 7)

Assessment arising out of a claim for overpaid tax: prior to final determination of claim

Other situations

EIS withdrawal/reduction

– see XX.

CGT provisional roll-over relief lost

"(1) This section applies where a person carrying on a trade who for a consideration disposes of, or of his interest in, any assets (“the old assets”) declares, in his return for the chargeable period in which the disposal takes place—

(a) that the whole or any specified part of the consideration will be applied in the acquisition of, or of an interest in, other assets (“the new assets”) which on the acquisition will be taken into use, and used only, for the purposes of the trade;

(b) that the acquisition will take place as mentioned in subsection (3) of section 152; and

(2) Until the declaration ceases to have effect, section 152 or, as the case may be, section 153 shall apply as if the acquisition had taken place and the person had made a claim under that section.

(3) The declaration shall cease to have effect as follows—

(a) if and to the extent that it is withdrawn before the relevant day, or is superseded before that day by a valid claim made under section 152 or 153, on the day on which it is so withdrawn or superseded; and

(b) if and to the extent that it is not so withdrawn or superseded, on the relevant day.

(4) On the declaration ceasing to have effect in whole or in part, all necessary adjustments—

(a) shall be made by making or amending assessments or by repayment or discharge of tax; and

(b) shall be so made notwithstanding any limitation on the time within which assessments or amendments may be made.

(5) In this section “the relevant day” means—

(a) in relation to capital gains tax, the third anniversary of the 31st January next following the year of assessment in which the disposal of, or of the interest in, the old assets took place;

(b) in relation to corporation tax, the fourth anniversary of the last day of the accounting period in which that disposal took place.

(6) Subsections (6), (8), (10) and (11) of section 152 shall apply for the purposes of this section as they apply for the purposes of that section." (TCGA 1992, s.153A))

“The correct course for HMRC to take in the light of our decision appears to us to be to issue a fresh discovery assessment pursuant to paragraphs 41 to 47 Schedule 18, FA 1998. They would be in time to do so by virtue of the express provision of section 153A(4)(b) TCGA.” (Benham (Specialist Cars) Ltd v. HMRC [2016] UKFTT 330 (TC), §68 – FTT held that s.153A did not provide a free-standing power to make amendments/raise assessments. The taxpayer benefited because a discovery assessment would allow it to make a claim for a consequential amendment to carry back a loss).

Other situations

G4: Time limits (direct tax)

Calculating time: when the clock stops

Assessment made when decision made to assess and entry into the computer authorised

Difference between making an assessment and notifying it

HMRC apply time limits to notice of assessment (at least for VAT purposes)

Ordinary time limit: 4 years

Extended time limit only applies to the loss caused by the relevant behaviour

The assessment is only valid to the extent that the loss of tax is attributable to careless or deliberate behaviour ​

HMRC have burden of proving careless/deliberate behaviour and loss of tax attributable

See further N9: Burden of proof

- HMRC do not have the burden of proving detail (such as source or timing of income)

- No real difference between TMA s.29(4) and s.36 burdens

Loss brought about carelessly: 6 years

​

- The carelessness must cause the loss

​

​

However

Meaning of careless

See A3: Reasonable excuse and carelessness

- Deemed carelessness (failing to inform HMRC of error)

​

Loss brought about deliberately: 20 years

Not a criminal charge for human rights purposes

Related person (corporation tax)

Meaning of deliberate

Deliberate means intentional or knowing

Treating income as company income without doing anything to make it company income

Query whether a finding of Kittel knowledge amounts to a deliberate inaccuracy

- May amount to finding of dishonesty

- Blind eye knowledge: inference of knowledge from failure to investigate

​

Open to Tribunal to draw inference of knowledge conscious decision to refrain from taking steps to confirm existence of suspected facts

- Query whether it includes recklessness

- Difference between knowledge, wilful blindness and recklessness

Reckless not the same as blind-eye knowledge

​

​

Recklessness is taking an unjustified risk despite being aware of it. Wilful blindness involves the conscious decision to refrain from taking steps to confirm the existence of the suspected risk/fact

- Deemed deliberateness (deliberate inaccuracy in document)

​

Can include conduct falling well short of fraud

​

​

Must know the document was inaccurate​ and intend to mislead

Interpret the document as a whole

Failure to notify chargeability: 20 years

Unnecessary to consider what the return would have shown

Acceptance of voluntary return by HMRC does not affect time limit for assessment ​

- No failure if reasonable excuse

​

See TMA s.118(2) and A3: Reasonable excuse.

​

​

"“Discovery” assessment where loss of tax due to failure to notify liability to tax.

Where the person has a reasonable excuse for the FTN with no unreasonable delay they are deemed not to have failed

Time Limit 20 years from the end of the year of assessment or 4 years from the end of the year of assessment where the person has a qualifying reasonable excuse." (CH56100)

​

Failure to submit SDLT return: 20 years

Failure to comply with obligations regarding tax avoidance schemes: 20 years

​

​

​

Attribution of conduct: person acting on behalf of taxpayer

​

For corporation tax see above: FA 1998, Sch 18, para 46(2A) and (2B)

​

​

- Adviser is not person acting on behalf

​

- Seller of scheme is not acting on behalf

​

- Completing and filing tax returns is acting on behalf

​

- Corresponding with HMRC is acting on behalf

​

Query whether the negligence/fraud has to be in the course of acting on behalf.

- Providing figures for tax return: uncertain

​

- LLP not acting on behalf of members in arranging for external advice to be provided

The assessment is only valid to the extent that the loss of tax is attributable to careless or deliberate behaviour

Must know the document was inaccurate and intend to mislead

Acceptance of voluntary return by HMRC does not affect time limit for assessment

Time Limit
20 years from the end of the year of assessment or 4 years from the end of the year of assessment where the person has a qualifying reasonable excuse." (CH56100)

Offshore matters within the requirement to correct rules: 5 April 2021