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Discovery Assessment – Invalid Enquiry

Can information discovered during an invalid enquiry be used for discovery purposes?

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We have taken over a client where discovery assessments have been raised for 6 years under the pretext of careless conduct. A section 9A enquiry was opened into the client’s 2014 return, and through this enquiry, the inspector “discovered” information which led him to believe that income had been underdeclared for the previous 6 years. A few years of poor advice later (previous “advisor” basically advised a head in sand approach) and the enquiries are closed, and deadlines for appeal have passed.

For the years where the discovery was raised, there was no tax liability. Evidence has been provided to HMRC to support this, however as the appeal deadline is closed HMRC won’t entertain it.

We are confident that our client has not underpaid any tax for the years in question, and are looking for some way to help them out of the predicament they are in. Chances are this is simply going to be a very painful lesson for them but I have come up with one angle that might bear fruit.  

This all started with the 2014 return – our client’s first return. A section 9A enquiry was opened into this return and from here the discovery was made.

Given the recent cases which have found that late filing penalties did not apply as valid notices to file had not been issued (https://www.accountingweb.co.uk/tax/hmrc-policy/computer-acts-as-the-hmrc-officer), my thought is to argue that as no valid notice to file was issued, an enquiry under section 9A could not be raised – section 9A enquiries can only be raised on a return under section 8 (see Patel case https://www.accountingweb.co.uk/tax/hmrc-policy/taxpayers-escape-penalties-on-voluntary-returns). The 2014 enquiry is therefore invalid, and any findings from that similarly invalidated.

I’m not too sure about that last line though – does it follow that, as the enquiry which “discovered” the information the inspector used for the discovery assessments was invalid, that the information “discovered” cannot be used to make a valid discovery assessment.

I can’t find any cases or guidance on this point so thought I’d ask here.

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18th Oct 2018 12:14

I should add that I am aware that using a FTT decision as the basis for my argument makes this a bit of a long shot, but due to the sums involved here, it is likely our client will pursue this through the tribunals.

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18th Oct 2018 13:01

The argument in your penultimate paragraph above will not work, but there are other potential arguments to challenge such a discovery assessment (you also need to apply to the Tribunal for permission for a late appeal thereto and if all else fails the previous adviser can be sued for negligence).

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