If the Tax Man (HMRC) is not content with the accuracy of a taxpayer’s self-assessment, he can open an enquiry into the return, within a year, and amend the assessment.
This is called a discovery assessment and can only be made where the taxpayer has been deliberate (within 20 years), or careless (six years), in understating their liability.
In 2009, Mr Tooth – a prominent divorce lawyer, rather than an invention of Roger Hargreaves’ imagination – submitted his self-assessment tax return for 2007-08. Through a tax avoidance scheme, he “avoided” a potential liability of almost £500k. Mr Tooth’s participation in the scheme was on foot of Counsel’s Opinion.
That scheme was deemed ineffective, retrospectively, in 2013.
HMRC then issued a discovery assessment, contending that the insufficiency in his assessment had been deliberate on the basis that the “loss” was wrongly inserted into a box on the electronic form for partnership losses rather than an employment-related loss.
Mr Tooth’s appeal to the First-Tier Tribunal was allowed as there had been no deliberate inaccuracy – he even used the “white space” on the electronic form to explain the position. This was upheld on appeal to the Upper Tribunal, and then the Court of Appeal.
HMRC appealed to the Supreme Court (UKSC).
The UKSC concluded that there was “no 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.
It could not be said that Mr Tooth’s inaccuracy was deliberate. The appeal was dismissed.
The retrospective application of rules jars. This can be seen not least through the everchanging Coronavirus regulations.
It is difficult for the courts to determine whether the conduct of citizens is ‘right’ or ‘wrong’ where the standard by which there are to be judged are less than clear.
Retrospective laws yield confusion.
Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.Benjamin Franklin (1706-1790)