Taxpayer duty to inform HMRC of past mistakes

Is a taxpayer obliged to correct a mistake in an earlier year tax return?

Didn't find your answer?

Whilst checking whether or not 5 year averaging was beneficial for a client, we have come across an error in the 2016 self-assessment return – basically that particular years 2 year averaging was incorrect and has resulted in £3.5k in tax being underpaid.

I’m in no doubt that many will argue that the moral/ethical thing to do is to advise HMRC of the error and pay the tax owed.

However, what is the taxpayer actually obliged to do by law?

I was reading the Sanderson V HMRC [2013] UKUT 0623 case with interest. The judges comments in that case that although a failure to correct an error could have an effect on penalties, there was no statutory provision obliging a taxpayer to correct a return, nor any duty (so far as he was aware) to inform HMRC of past mistakes.

So, if the taxpayer submitted his return, and the taxpayer and agent at the time genuinely believed at the time that the return was correct and complete to the best of their knowledge, then they have done nothing wrong, and there is no statutory obligation to inform HMRC that they later find an error.

This is the case. The person who prepared the return genuinely believed what they calculated was correct, and the taxpayer believed the return prepared by us was correct, and so both us and the taxpayer were justified in submitting a return which we believed to be correct.  

It was only as I was looking at the 2018 5 year position that the error was spotted – and we are now out of time to submit an amendment.

I’m aware that if this is later discovered by HMRC then we are exposed to larger penalties, but does anyone know of any statutory obligation on a taxpayer to correct an error – particularly one outside the time limit for amendment?

Replies (50)

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By frankfx
04th Dec 2018 00:36

Do you offer fee protection cover?
run this pass the support team.
invariably very helpful
and up to speed with HMRC attitude to behaviour.

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By Tax Dragon
04th Dec 2018 06:55

I don't know the strict legal position, but I don't imagine you will get many responses demurring from what you say is the moral/ethical answer. Until a return is submitted that complies with s8 TMA, the obligation to do so has not been met. I see no logical reason to suppose that that obligation has ceased, in the scenario you present.

You might also need to consider professional guidelines with which you may have to comply. For example, the Professional Conduct In Relation To Taxation guidance on “irregularities” might be in point.

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By Duggimon
04th Dec 2018 10:22

I would have to agree that, while it would be very tempting to just say nothing and leave it to the fates, your obligation to file figures that you believe to be correct to the best of your knowledge does not end with HMRC's acceptance of your submission.

I don't know of any statutory provision compelling a taxpayer to inform HMRC of an error, but believe the statutory provisions compelling them to file accurate returns suffice to place an obligation on them to disclose these errors if discovered.

Which of course puts you in a tricky position because the taxpayer would never have discovered them on their own. I don't envy you at all.

I'd be interested to know if your view on it would be altered at all if the return were not out of time for amendment? Though I appreciate you may not want to disclose your view on the situation at all.

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By Justin Bryant
04th Dec 2018 11:13

See:

https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1906

And this bit from para 43 of the case in the link below:

“43. As Henderson J said in Household Estate Agents, in the absence of relevant evidence there is nothing to displace the general rule that discovery assessments (and we would add assessments outside the normal four-year time limit) may not be made”

http://www.tribunals.gov.uk/financeandtax/Documents/decisions/Burgess_Br...

So, assuming there's no FTN and it's not a careless (or deliberate) failure in the return the 4 year time limit holds good. There is nothing to stop voluntary restitution by the taxpayer however (but HMRC are never that generous if the boot's on the other foot).

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By Tax Dragon
04th Dec 2018 11:22

2016 being less than 4 years ago, if you can deduce whether Justin agrees or disagrees with the other respondents, you are a better wolf than me.

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Replying to Tax Dragon:
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By Justin Bryant
04th Dec 2018 12:25

There is case law on that and importantly you need to consider issues like that in the link below:

https://www.taxjournal.com/articles/one-tax-mistake-and-you-re-out-16052018

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Replying to Justin Bryant:
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By Tax Dragon
04th Dec 2018 13:01

Duplicate.

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Replying to Justin Bryant:
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By Tax Dragon
04th Dec 2018 13:01

Nope. Still don’t know your view. And I don’t believe there is case law on this. You haven’t cited any and indeed why would there be any? In what circumstances would the question of taxpayer obligation to notify errors come to court? Only once there had been a discovery - and in those cases the question of taxpayer notification is relegated to one of behaviour to take into account in quantifying penalties. There is of course case law aplenty on discovery and HMRC powers. It’s hardly relevant to the OP.

Interesting article though. Some of the draconian measures those in authority impose on the rest of us beggar belief.

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Replying to Tax Dragon:
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By Justin Bryant
04th Dec 2018 13:43

HMRC say in the following extract from the link below that an inaccuracy that was not initially deliberate only becomes at most “careless” if later identified and not communicated to HMRC. This implies that if I find a VAT inaccuracy (that was not initially deliberate) more than 2 years after the VAT accounting period, then that is too late for HMRC to do anything about it i.e. it implies that any failure to communicate such an error to HMRC within a 20 year time period does not convert an initially non-deliberate underpayment of tax into a deliberate underpayment of tax for the purposes of the 20 year rule.
“Q15. What should I do if I discover an inaccuracy in a return or document I've already sent to HMRC?
Please contact HMRC as soon as possible about the inaccuracy, giving as much detail as possible.
Even if the inaccuracy was neither careless nor deliberate at the time the document was sent, it will still be treated as careless if you do not take reasonable steps to inform HMRC, after you have discovered the inaccuracy.
Reasonable steps include, for example:
• consulting an accountant or agent to discuss the position so they can inform HMRC
• phoning HMRC to discuss it
• discussing it with one of HMRC's officers during an ongoing compliance check
• emailing, faxing or writing to HMRC with the details”
http://webarchive.nationalarchives.gov.uk/+/http:/www.hmrc.gov.uk/about/...

Overall, there may still be a risk that HMRC may argue any original non-deliberate error was potentially “reckless” so that the 20 year assessment rule applies.

The case law is re a professional's duties for taxpayer's mistakes identified within the relevant time limit. All other case law would be re penalties for unprompted disclosure etc.

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paddle steamer
By DJKL
04th Dec 2018 11:33

How does the client's position interact with the agent's position re MLR?

If the client has no statutory duty to report but becomes aware of the mistake and does not correct, and accordingly has been afforded a financial advantage that he ought not to have received, how do the two different facets - HMRC compliance re process and MLR re proceeds of crime interact- i.e. having become aware of the error does non correction make the tax monies proceeds of crime?

Can the £3,500 be called proceeds of crime if the error was innocently made and HMRC processes do not require correction?

How do the different branches of legislation mesh?

One possibly for David Winch.

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By frankfx
04th Dec 2018 13:55

if the error is not deliberate and so on.
AND falls outside the HMRC four year rule

then where is the criminality? MLR obligations that follow.

Why not run this one pass ACCA/ ICAEW tech team?

I am sure a lawyer would have a field day if agent came forward...…….. unnecessarily so...…… and taxpayer suffered losses

Would fee protection underwriters wince ?

Mr Winch your insight would be welcomed .

Many of us, here, are sole practitioners and do not have resources to buy external opinion...…… as many large firms are apt to do, and build their own knowledge base.... to monetize!

Somewhere out there legal advise would have been sought and received by a accountants money laundering officers up and down the country, to confirm the view:

JUST KEEP QUIET!

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Replying to frankfx:
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By Justin Bryant
25th Jan 2019 13:12

You are misunderstanding how the UK tax system works. There is a duty to file a correct return in the 1st place. If that turns out to be incorrect for one reason or another then there are potential discovery assessment & penalty consequences depending on why it was incorrect. There is no other secondary duty to file a correct return once it's been filed. A failure to correct an error subsequently identified may lead to an extended discovery assessment period and increased penalties. In my view it cannot be a cause for a deliberate failure if the first failure was not deliberate per my comment above and that seems to be HMRC's view too (although it could potentially lead to a 20 year DA reckless problem if discovered & not reported within the normal 4 year period - see https://www.accountancydaily.co/time-limits-discovery-assessments-tax-re...).

The tax professional's duty is different however & is determined by case law & ethics etc.

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Replying to Justin Bryant:
By Duggimon
04th Dec 2018 15:17

The duty to file a correct return has not been met. The taxpayer knows this is the case and knows they have fallen short of their legal requirement.

Just because HMRC don't know this is the case doesn't change the facts, only the likelihood of being found out. I don't believe anything you've cited provides anything to suggest the taxpayer's obligation has been discharged, just that they can't be penalised for deliberately filing a wrong return.

Just to be clear, are you advocating doing nothing and hoping the period falls out of time for a discovery assessment, since the taxpayer will only be penalised for a careless rather than deliberate error if found out? Because that's how it comes across, though I wouldn't want to misrepresent your stance if I've perhaps misunderstood.

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Replying to Duggimon:
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By Justin Bryant
04th Dec 2018 16:48

You have very obviously misunderstood/misinterpreted what I say above.

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Replying to Justin Bryant:
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By Tax Dragon
04th Dec 2018 17:30

To be fair to Duggi, it wasn't "very obvious". But to be fair to you, I had read your contributions as not recommending the burial of advisors' heads in sands - which is a different point to the original question, but (along with DJKL's) is a natural corollary if the client refuses to authorise disclosure.

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Replying to Duggimon:
7om
By Tom 7000
05th Dec 2018 13:12

well we could all do tax returns wrong and hoped they all didn't get looked at for 4 years....

I think youd be in front of a judge pretty sharpish though...

And quite rightly so. Do it once do it properly. Fix the mistakes and take it on the chin. A clients anger is nothing compared to HMRCs powers to obliterate you.

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By frankfx
04th Dec 2018 15:22

Justin noted.

On an earlier thread I had posited that the tax agent should inform HMRC 'outside 4 year'' (simplifying matters here ) , as it is not the agent's prerogative to decide on the culpability and classification of the error.

HMRC , rightly so, make and take their own course of action. Once informed by agent.

Seems I mis-educated'' myself on this one.

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Replying to frankfx:
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By Tax Dragon
04th Dec 2018 17:38

I didn't see the earlier thread, but it sounds like you made an interesting point. I can see your (earlier) logic.

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By David Gordon FCCA
05th Dec 2018 10:41

A precedent may be taken from dealings with banks.
From my layperson's experience, if money mistakenly comes into your account, you are obliged under Common Law to tell the bank.
Similarly with tax. If you know, and "Knowing" is the operative word, that you have underpaid tax through your own error, you are in law obliged to pay it. It is a statutory obligation on your part.
If the accountant made the error, then, upon HMRC discovery, any penalties levied upon the client would be a claim on the accountant.
Clearly there is an issue if the accountant upon discovery of the error, deliberately concealed the fact.
I well understand the client's attitude, but the accountant has a practice to protect. Prudence suggests that risking HMRC deciding to look at all his clients as a result of the above, is a risk too far.
This is different from where HMRC raise an assessment upon full correct information received, but HMRC's assessment is incorrect.
I believe -I am not an expert- the taxpayer is entitled to rely on HMRC's assessment.

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By Homeworker
05th Dec 2018 10:54

Many years ago, before HMRC could go back 20 years, a new client (an actor) came to me to tell me he had not declared any earnings to HMRC for 12 years, as he didn't have enough money to pay the tax due. He had picked up a particularly good job and wanted to "come clean".
We prepared 12 years accounts and tax returns and I sent them all to HMRC with an explanation. They duly assessed all of the in-date years and kindly declined to bother with the out of date years! Admittedly the unpaid tax was relatively small but I wonder if the same would apply now!

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Replying to Homeworker:
paddle steamer
By DJKL
05th Dec 2018 12:11

duplicate

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Replying to Homeworker:
paddle steamer
By DJKL
05th Dec 2018 12:11

Duplicate

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Replying to Homeworker:
paddle steamer
By DJKL
05th Dec 2018 12:12

Duplicate

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Replying to Homeworker:
paddle steamer
By DJKL
05th Dec 2018 12:09

I thought the 20 year rule (re deliberate dishonesty) had been around for years, certainly at least twenty years.

I had my one and only introduction to Special Compliance back in the 1990s, just before SA came in I think, when a local HMRC enquiry escalated to an enquiry involving Special Compliance (Think two guys like Reagan and Carter from the Sweeney) , and whilst I left before the conclusion of everything they were assessing over a twenty year period and had forced the client to issue standard securities over the various business premises they then owned- the running bill , with interest and charges, being negotiated when I left, was up at the circa £420,000 mark; a lot of money in the 1990s as I bought my current house back then for £105,000.

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By pauljohnston
05th Dec 2018 10:55

I do wonder whether the poster of the question is of the opinion that the tax payer will hold his firm liable for the tax or at the least the interest.

My advice therefore would be to contact your PI underwriters thus if a claim arises you will have done your bit. Indeed their lawyers may help you with the other part of the question ie should HMRC be advised.

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Replying to pauljohnston:
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By Tom 7000
05th Dec 2018 13:16

2 years interst on 3.5K is £200... . and loss of a client

no PI necessary.

Fine for not telling HMRC - taking your certificate away - and you geta job as a bin man

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By David Gordon FCCA
05th Dec 2018 11:09

To amplify my above comments.
This has nothing to do with "Tax Law"
The subject has through his or her own unforced action, knowingly accrued to him/ herself a financial advantage to which, he or she well knows, he or she is not in law entitled.
Innocent error is, can only be, a mitigation factor if the matter is corrected as soon as known.

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7om
By Tom 7000
05th Dec 2018 13:09

crumbs how time flies
2 years to correct electronically
2 more years after that

and todays 2018 and the mistake was 2016
....but we are past the time limit.....

puzzled I am

Maybe if it was 2013

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7om
By Tom 7000
05th Dec 2018 13:19

My advice.
Bite the bullet Loan Wolf
Tell the client and report it.
Tell him he is lucky you found it and can fix it as it will save him the penalties for voluntary disclosure

Use that silver tongue

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By Montrose
05th Dec 2018 14:52

Not all adjustments are in respect of errors.

Suppose Mr A who is UK tax domiciled and resident has overseas earnings 1n 2014/5 on which he is taxed, and correctly includes such income in is UK 2014/5 SA return, claiming credit for the foreign tax paid.

In May 2017 his local tax agent proudly tells Mr A that he has been able to negotiate a reduction in the local tax in respect of those 2014/5 earnings.

Taxation (International and Other Provisions) Act 2010 s80 provides specifically for a 12 month disclosure period in such case, with penalties for failing to report within that time scale of up to 100% of the resultant underpaid UK tax.

Is that a precedent here?

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Replying to Montrose:
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By Justin Bryant
05th Dec 2018 16:45

That's nothing. You can get much weirder than that!

If I exchange contracts to sell an asset that completes 8 years later say (and I file a tax return as normal for the year the contract exchanged but did not include any CGT there as it had not completed), what do I do?

I think I once knew the answer (and could probably Google it) but have forgotten it and there is no obvious way to file an amended tax return for the correct year of exchange of contracts 8 years ago.

Perhaps PNL can enlighten us?

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Replying to Justin Bryant:
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By Montrose
07th Dec 2018 00:03

Completion is irrelevant, unless it doesn't happen!
TCGA s48 makes clear that exchange of an unconditional contract is the date of disposal. Instalment relief under s280 is prima facie not available;
whether HMRC would be helpful is not a matter of law.

If the parties decide within the period between exchange and completion that the contract will be scrapped, then retroactively the disposal is deemed never to have happened and any CGT due in the year contracts were exchanged is repayable.

It is only SDLT which follows completion .

The answer could be different if the vendor is a developer or property dealer for whom CGT may not apply.

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Replying to Montrose:
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By Tax Dragon
07th Dec 2018 08:00

Montrose wrote:

Completion is irrelevant, unless it doesn't happen!

That's the point. The disposal does not happen until completion. No disposal, no need to refer to TCGA. Once you have a disposal (when you have completed), you look to TCGA and find out it was taxable 8 years ago.

But this really is another thread.

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Replying to Justin Bryant:
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By Justin Bryant
15th Mar 2023 14:05
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Replying to Justin Bryant:
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By Justin Bryant
17th Mar 2023 10:09

See this also from a City law firm:

"Separately, the Budget announced that it would be closing an "avoidance loophole" in the CGT rules, where someone agrees to sell an asset in several years’ time, under an unconditional contract. The operation of section 28 TCGA 1992 means that there would be no disposal until the contract actually completes – but, once it completed, the disposal would be deemed to occur on the date the contract was signed. And HMRC might then find themselves time-barred from assessing CGT for the year in which the contract was signed.
It’s not surprising that this flaw is being fixed. But it certainly is surprising that it’s taken HMRC 19 years to act, given that the flaw was pointed out by the House of Lords, in the Jerome v Kelly case, in 2004. In that case, Lord Hoffmann commented that “Parliament showed no sense of urgency” in fixing another flaw in the CGT code (which took a mere four years to resolve). That lack of urgency certainly applies to this Budget change, too."

So it seems that I was right above about this scheme working.

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Replying to Justin Bryant:
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By Justin Bryant
15th Mar 2024 12:21

It seems that I was definitely right. See para 39 here: https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j13000/TC...

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Replying to Montrose:
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By Tax Dragon
06th Dec 2018 13:26

Montrose wrote:

Is that a precedent here?

No.

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By Swimmingagainstthe Tide
06th Dec 2018 10:23

A number of years ago we had a client subject to a tax investigation who was found to have understated their income. It was clear cut and the tax and penalties settled. We advised the client that there were additional VAT implications and that we should disclose them. We did so and got a lovely letter from HMRC saying that the additional VAT to which we were confessing was beyond the (then) three year time limit and they could not collect it! Both client and I were flabbergasted.

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Replying to BSSRoberts:
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By Justin Bryant
06th Dec 2018 12:35

That is entirely unsurprising per my above comments (voluntary restitution being the only way for HMRC to recover the VAT in this situation, that your client presumably declined).

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By frankfx
07th Dec 2018 00:12

The case judge presiding at the SFO action vs. THE TESCO TWO seemed to have found a neat solution: (wilful ) ignorance?

Now that would another thread.

Justin, thanks for your pointers on this one.

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Replying to frankfx:
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By Tax Dragon
07th Dec 2018 07:51

frankfx wrote:

...that would another thread.

Indeed. Justin has a habit of referencing cases that may have an indirect bearing on issues related to those that everyone else is discussing, without actually engaging with the point at hand.

On this occasion though I think he has picked up on the question the OP should have asked. One thing that is clear is that the OP must advise disclosure - there is no option to do nothing, and no option to advise the client to do nothing.

I would expect (from experience) that the client would agree to disclose. The question the OP should ask - and here Justin's comments are useful- is "what if they don't?"

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By Justin Bryant
10th Dec 2018 14:09

There is in fact case law confirming my above view. See:

"However, the Upper Tribunal did not accept the Revenue’s assertion that the taxpayer’s adviser had been negligent in advising his client to do nothing when it became clear the Castle Trust scheme did not work.

The judge noted there was “no statutory provision imposing an obligation on a taxpayer to tell HMRC about something in a filed return that he subsequently finds to be erroneous”."

https://www.taxation.co.uk/Articles/2014/02/03/319821/discovery-stands

"Taxpayers are required by statute to submit tax returns, and every such return will include, in accordance with section 8 of the TMA, a declaration by the person making the return that it is correct and complete to the best of his knowledge. In contrast, there is no statutory provision imposing an obligation on a taxpayer to tell HMRC about something in a filed return that he subsequently finds to be erroneous.
The most that can be said is that a failure to correct an error can potentially affect a taxpayer’s exposure to penalties (see sections 95 and 97(1) of the TMA). There is thus no question of Upton Wilson having ignored a provision obliging a taxpayer to correct a return;"

http://taxandchancery_ut.decisions.tribunals.gov.uk/Documents/decisions/...

Also, s118(6) TMA 1970 and para 3(2) Sch 24 FA 2007 confirm my above careless point.

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Replying to Justin Bryant:
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By Tax Dragon
10th Dec 2018 14:42

I presume that the TMA and FA2007 provisions are there to enable HMRC to raise discovery assessments in accordance with s29(4). That ability appears to have been absent (although HMRC succeeded with its invocation of s29(5)) in the case you cite. The Tax Guidance I referred to above is more recent still.

There is a danger in relying as heavily as you seem to in case citations. Statute tends to have moved on in the meantime.

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Replying to Tax Dragon:
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By Justin Bryant
10th Dec 2018 15:47

Interesting how you dislike acknowledging that you are wrong - see your above email 04th Dec 2018 13:01 stating adamantly that there are no tax cases on this point.

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Replying to Justin Bryant:
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By Tax Dragon
10th Dec 2018 16:12

It's not a tax case on the point at question. It was a tax case on HMRC discovery powers. I said there were many of those.

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Replying to Justin Bryant:
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By Tax Dragon
16th Apr 2019 18:15

Since you have (de facto) reactivated this thread, I'll now add... the quotes you reference are introduced by the comment: "It seems to me that, regardless of whether Mr Yates is right that a taxpayer has a duty to correct mistakes (as to which I do not think I need express a final view)…."

The judge then proceeds to express no final view.

You read (IMHO) too much into, and (or so it seems) give to much weight to, subordinate clauses. If either of us should be saying the judge "agreed", it's me - the judge said case law was absent, same as I said.

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By David Gordon FCCA
11th Dec 2018 17:03

justinbryant
OK - sorry.
Please consider. are the two matters dissimilar?
(According to brief notes on AW)
In a) The error appears to be a straightforward arithmetical error for which the taxpayer (Or his accountant) is responsible.
In b, your example) The return included information which at the time of submission was factually correct.
So, this was not an "Error" it was an interpretation of fact subsequently challenged in a non-associated taxpayer's case.
I suggest therefore that this would be for the reviewing inspector to challenge the interpretation used in a specific taxpayer's return, or not, as the case may be.
There is no precedent, I believe, for HMRC to claim that because HMRC got an advantageous interpretation in case A; We all must go back and review factually correct returns previously submitted, and accepted by HMRC on an alternative viewpoint.

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By David Gordon FCCA
11th Dec 2018 17:03

justinbryant
OK - sorry.
Please consider. are the two matters dissimilar?
(According to brief notes on AW)
In a) The error appears to be a straightforward arithmetical error for which the taxpayer (Or his accountant) is responsible.
In b, your example) The return included information which at the time of submission was factually correct.
So, this was not an "Error" it was an interpretation of fact subsequently challenged in a non-associated taxpayer's case.
I suggest therefore that this would be for the reviewing inspector to challenge the interpretation used in a specific taxpayer's return, or not, as the case may be.
There is no precedent, I believe, for HMRC to claim that because HMRC got an advantageous interpretation in case A; We all must go back and review factually correct returns previously submitted, and accepted by HMRC on an alternative viewpoint.

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By richard thomas
18th Mar 2023 10:40

The question here is whether a taxpayer is obliged by law (rather than say any duties they might have under the Taxpayer’s (my name for it) Charter or their conscience) to inform HMRC that a previously filed return is wrong.

A taxpayer has the following obligations in law, but in my view no others unless in compliance with valid notice from HMRC backed by sanctions (eg Schedule 36 FA 2008):

1. To notify HMRC, if they have not been required by notice to make a return, of any income on which they are chargeable to tax unless one of the exceptions applies or of any chargeable gains (s 7 TMA).

2. If so required, to make a return of income and chargeable gains etc with:

“a declaration by the person making the return to the effect that the return is to the best of his knowledge correct and complete.” (s 8(2) TMA).

3. To pay any tax due at or soon after the due date (s 59B TMA) – but I don’t consider this further here.

Failure to notify by the relevant date may (indeed must), when notified or discovered, lead to HMRC issuing a penalty assessment under paragraph 1 Schedule 41 FA 2008.

Making a return which is contrary to the declaration, ie knowingly incorrect or incomplete, must, when notified or discovered, lead to HMRC issuing a penalty assessment under paragraph 1 Schedule 24 FA 2007, unless there is no tax loss, or to prosecution under s 106A TMA or for common law cheat etc.

In my view paragraph 2 Schedule 24 FA 2007 (Under-assessment by HMRC) does not apply to a self-assessment.

My second paragraph is supported by the binding decision of the Upper Tribunal (Newey J as he then was) in Sanderson, mentioned in the OP. But it is important to note that in that case the UT did not say that the HMRC argument in [35]:

‘Mr Yates submitted that a taxpayer has a duty to correct matters if he learns that a claim for relief made in his return was ill-founded, at least if the error emerges before the (long) period allowed for making such a claim has expired.’

was wrong. He said [36]

“It seems to me that, regardless of whether Mr Yates is right that a taxpayer has a duty to correct mistakes (as to which I do not think I need express a final view) …”

It is important to realise that the issue in Sanderson was whether the accountants were negligent (as otherwise a discovery assessment would not be valid) and to see what was said as the reasons the judge gave for holding that they were not in [36] in that context, but it is at least helpful:

‘(i) Taxpayers are required by statute to submit tax returns, and every such return will include, in accordance with section 8 of the TMA, a declaration by the person making the return that it is correct and complete to the best of his knowledge. In contrast, there is no statutory provision imposing an obligation on a taxpayer to tell HMRC about something in a filed return that he subsequently finds to be erroneous. [There is more which I come to below)

(ii) By 2004 it had not been held by any Court that a taxpayer has a duty to inform HMRC of past mistakes. (In fact, that remains the position today so far as I am aware.) Upton Wilson cannot therefore be said to have overlooked relevant case law;’

The passage in (i) that is missing is this:

‘The most that can be said is that a failure to correct an error can potentially affect a taxpayer’s exposure to penalties (see sections 95 and 97(1) of the TMA). There is thus no question of Upton Wilson having ignored a provision obliging a taxpayer to correct a return;’

Sections 95 and 97 TMA were repealed by FA 2007. The replacement is in paragraph 3 Schedule 24 to that Act:

‘(2) An inaccuracy in a document given by P to HMRC, which was neither careless nor deliberate on P's part when the document was given, is to be treated as careless if P—

(a) discovered the inaccuracy at some later time, and

(b) did not take reasonable steps to inform HMRC.’

This has to read with paragraph 3A (avoidance arrangements) and paragraph 18 (Agency), in particular:

‘(3) … P is not liable to a penalty under paragraph 1 … in respect of anything done or omitted by P's agent where P satisfies HMRC that P took reasonable care to avoid inaccuracy (in relation to paragraph 1) ….

Obviously in Newey J’s view this penalty possibility does not have the same characterisation as a legal obligation that making an honest and careful return under s 8 does. It might be regarded by some as an implicit obligation on the taxpayer but where something like complex claims (as in Sanderson) or farmer’s averaging (as here) are involved it is likely that the taxpayer (P) did take reasonable care.

Nothing is lost in this case, and grief with HMRC may be avoided, if reasonable steps are taken to a disclose the error. Note that unlike in paragraph 2 (under-assessment) there is no time limit for disclosing in paragraph 3 (or 3A). And in this case given that even a careless inaccuracy in 2015-166 cannot be assessed under a DA (and the time limit for 2016-17 expires this 5 April) it would be odd for HMRC still to argue for a penalty under Schedule 24 was due.

I cannot for the life of me see how POCA might be relevant, or deliberate conduct. Nothing here covers professional standards and obligations or conscience.

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Replying to richard thomas:
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By More unearned luck
15th Mar 2024 13:21

"In my view paragraph 2 Schedule 24 FA 2007 (Under-assessment by HMRC) does not apply to a self-assessment." Including, I think, when in a closure notice or partial closure notice HMRC, in error, conclude that the increase in the original SA is less than it should be.

That is to say a CN is not a revenue assessment.

I had a case where HMRC meant to disallow losses that had been set against both income and capital gains, but only disallowed the losses set against the income in the CN.

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