Lansdowne decision key to HMRC discovery powers

Posted by robertlovell PM | on Thu, 12/01/2012 - 14:22 6340 3 comments

The Court of Appeal's decision last month in Lansdowne Partners demonstrated that if a taxpayer has given HMRC all the relevant information, HMRC cannot use section 29 (5) TMA 1970 as a basis of the discovery assessment.

Section 29, in particular sub section 5, allows HMRC investigators to re-open cases when they’ve discovered that tax has been underpaid and inadequate information was provided to identify the issue within the normal inquiry deadline.

Keith Gordon of Atlas Chambers told AccountingWEB: “Since the case of Langham v Veltema the Revenue has taken a robust view in that, short of telling the Revenue on the tax return that the tax return was wrong, the taxpayer cannot be protected from a discovery assessment. The Revenue has repeated this argument on many an occasion with mixed success before the tribunals and courts.

Continued...

Service companies and discovery?

Matt F | Fri, 13/01/2012 - 12:40 | Permalink

I would be interested for views on how non-completion of the service company question(s) on the P35 / SATR could strengthen HMRC discovery powers, particularly for IR35 enquiries. It has been suggested that the completion of the service company question on the personal tax return is not obligatory and failure to do so does not render the return incomplete. However, does non-completion of this allow HMRC to use s29 to extend the enquiry period should they commence an IR35 review following a compliance check?

A good question Matt

k.gordon | Mon, 16/01/2012 - 12:39 | Permalink

The entitlement to raise a discovery assessment is limited if certain information is before the hypothetical "reasonable" HMRC officer. The information is per a list set out in TMA s29(6). Although not necessarily beyond doubt (the question is one of the issues in Charlton), the conventional wisdom is that entries or omissions on the P35 cannot affect HMRC's right to raise a discovery assessment on the worker him/herself.

Arguably, the absence or failure of the entries in the SC Question on the SATR can theoretically impact upon HMRC's right to challenge IR35 cases. So in doubtful cases it is always best to give a full explanation of what is going on in a white space. That would provide far more protection than simply stating an amount of income derived from a service company.

But two further points ought to be remembered:

1. IR35 challenges on the service company are usually based upon the company's failure to deduct PAYE and NIC. In such cases, the discovery rules are of absolutely no consequence.

2. The Revenue can never justify opening an enquiry under the discovery rules. The legislation just does not permit that. If, however, they have evidence that suggests that they will be able to make a valid discovery assessment (eg they know that something was wrong in one year and they need to ascertain whether it was wrong in another year and there is a reasonable reason to assume that the mistake would have been repeated) then they are permitted to ask questions in relation to that other year.

Keith Gordon
Atlas Chambers

PS I do not believe that the SC questions need to be answered at all.

HMRC and their discovery games

sirsortemout | Mon, 30/04/2012 - 11:12 | Permalink

Hello Keith,

I hope you are well,

I have attended the Lansdowne case with interest (in the hope of gleening some 'discovery - legal speak' and court protocol), the HMRC's solicitor was excellent orator, I just hope I dont have to face him in my Discovery hearing this June 2012.

In my case the HMRC had my SA open in both my local offices and at Capital Taxes Technical Group in Solihul on the 13th September 2002 to 3rd March 2003, both offices and one assumes no less than 3 X Tax Officers at each office clearly did not know what to do with the information as My SA was completed as was the norm for this prevailing period.

My very sufficient SA of 29 pages (normally only 17 pages) full of abundant detail, (pre DOTAS rules) tax rules reference No's and explanation in the white pages, there were internal memos discussing BUT no action taken from 13th September to the closing of the normal window of opportunity when after 103 days sick the local officer did no more than write 'been on sick leave, window of opportunity closed - too late and signed off. What happened to the other MINIMUM 5 Tax Officers between Harlow and Solihul I am not sure. Now HMRC are trying to noble me for the tax rules which finaly worked in Drummond v HMRC on the 25th June 2009.

I sincerely hope HMRC will fall over in discovery alone as the 'Hypothetical Officer' clearly found my SA and was discussing with Capital Taxes Technical Group on how to handle the abundant contents but I belive could conclude very little until after Drummond.

I am very skint so going it alone against 4 X HMRC people in Bedford Sq, obviously they will trounce me on technicality, experience, know-how, oratorally etc.

BUT can they really drag Court decissions from 2009 into play where my SA was for 2001?? I do struggle with the logic I am afraid.

I have been watching your Charlton case with great interest as the bones of this case are so similar to mine. If you have any tips I will be all ears as clearly I am on a back foot.

Cheers

Robert.

07885 860 440.