Staleness: When HMRC is Out of Time to Raise Discovery
What is staleness?
Firstly, it should be stated that this is very much a developing area of the law.
As we have seen in the other articles on discovery, HMRC must act promptly. If they do not act promptly then it might be the case that a discovery has gone “stale”.
This would make a discovery invalid.
One of the key cases on ‘staleness’ is the case Upper Tier Tribunal (“UTT”) of Tooth. We discuss this case, and other significant cases, below.
Charlton – DOTAS Scheme Reference
Here, in HMRC v Charlton, it was held that HMRC could not make a valid discovery assessment on the basis that the taxpayer’s original tax return included a DOTAS scheme reference number. As such, it sh should have been clear to a HMRC inspector that the taxpayer was using an avoidance scheme.
Pattullo – Staleness is Exceptional
In the case of Neil Pattullo v HMRC, itwas suggested by the Upper Tribunal it would, in its view, be only in the “most exceptional case” where staleness could apply to prevent a discovery.
However, it appears to that the concept has evolved since this decision.
Clive Beagles – HMRC delay
Here it was established that a discovery can become stale if the HMRC officer knows there is an issue and does nothing.
Hicks– 9 months does not lead to staleness
It was found in John Hicks v HMRC that a 9 month delay in raising the assessment following the change of view does not constitute staleness where HMRC were actively managing the case.
Monaghan – Decision made in 2014 is stale by 2017
In contrast to the decision in Hicks, it was held in Andrew Monaghan v HMRC thata discovery was stale where an assessment was made in 2017 based on a discovery made by 2014 at the latest. In this case, that discovery was made by a different officer.
Raymond Tooth & Staleness
Raymond Tooth v HMRC was a discovery case that went up to the Court of Appeal. It considered the powers of HMRC to raise a discovery and the important concept of staleness. Mr Tooth was successful and the discovery assessment was held as invalid.
For a detailed analysis of the case please see here.
If you receive a letter from HMRC where they say they are raising a discovery assessment then you must take action immediately. In the first instance you may look at appeal this discovery assessment and normally the time limit for doing so to HMRC is 30 days. Late appeals may be accepted by HMRC but, if not, you will need to appeal to the First Tier Tribunal.
We would recommend that if you receive such an assessment from HMRC that you speak to a specialist adviser without delay.
For more articles on discovery assessment please visit our signpost document.
If you, or your clients, have received a discovery assessment or have any queries about discovery assessment, then please do not hesitate to get in touch.