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HMRC discovery assessments timed out by tribunal

9th Aug 2019
Tax writer
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Hourglass Sands of Time Deadline

In another case where HMRC’s internal procedures appear to have failed, a tribunal has ruled that assessments sent out at least three years after being made were out of time, and therefore invalid. Andy Keates reports.

If a tree falls in the wood but there is nobody around to hear it, does it make a sound? This is a question which has occupied philosophers for centuries.

The first tier tribunal (FTT) had to consider a similar dilemma in the case of Kothari and others (TC07238). Here, though, the question was: ‘if an assessment is “made”, but HMRC doesn’t issue it for three years, can the assessment still be enforced?’

What happened?

Mr Kothari, Mr Fox, Mr and Mrs Cutler, and Mr and Mrs Wilkinson (let us call them “the Six”) had all independently entered into a stamp duty land tax (SDLT) mitigation scheme implemented by their solicitors. As a result, their SDLT returns showed a purchase consideration for tax purposes which was lower than the figure reported to the Land Registry.

HMRC carried out a massive review exercise on thousands of purchasers whose advisers had implemented this and similar schemes. Following HMRC’s conclusion that insufficient SDLT had been paid, a team of officers was delegated the task of making and issuing discovery assessments.

The team made over 2,000 assessments covering various SDLT schemes. Because of the scale of the exercise, the assessments were issued in batches: the Six fell into a batch totalling 122 assessments, all dated 18 February 2013 (a date close to the end of the standard four-year assessing window).

The problem

Kothari, Fox, the Cutlers and the Wilkinsons did not receive any notices of assessment: not in February 2013, nor in the three years that followed. Only following the issue in 2015 of “nudge letters” did any of the 122 taxpayers in this batch appear to have received anything from HMRC.

Of the Six, Wilkinson finally received a copy assessment in July 2016, as did the others in early 2017. At this point, they appealed. HMRC’s initial, if ironic, impulse was to deny the appeals as being too late, but following an initial hearing in August 2018 finally accepted that the appeals could be heard.

The issues

Judge Mosedale identified three things she needed to determine:

  1. Were the “assessments” actually made?
  2. Were they, if made, ever actually issued?
  3. In respect of Kothari, was his assessment a valid discovery assessment?

Making an assessment

HMRC’s power to make SDLT assessments is set out in Finance Act 2003, Schedule 10 paragraph 32. These provisions are a close parallel to the provisions in the Taxes Management Act governing direct taxes. Oddly, neither piece of legislation sets out a definitive process which has to be followed, so the judge was obliged to fall back on case law.

While the legislation requires HMRC to give notice of the assessment to a taxpayer, the Court of Appeal (in Honig [1986] STC 246) takes the view that giving notice is a separate activity from actually making the assessment.

The FTT (in Tutty TC06912) recently decided that, as long as the assessment was made by the end of the four-year assessing window, it is not invalidated simply by the notice to the taxpayer going out after that deadline.

So when were these assessments actually made? The Court of Appeal (in Burford v Durkin [1991] BTC 9) reduced the making of an assessment to two criteria:

  1. A decision to make an assessment in a particular amount; and
  2. An appropriate documentary record being made of that decision with the intention that that document shall take effect as an assessment.

It is clear that HMRC had carried out both of these steps by 18 February 2013, as copies of the notice were placed on every taxpayer’s file and the figures were entered into the computer system.

Although all this took place before 18 February, it was “good practice to post-date the assessments so that they are prepared and ready for posting in batches on the intended date of assessment”.

In the judge’s view, the assessments could be accepted as made on 18 February 2013.

Were the assessments issued?

It was accepted by all parties that something had gone wrong in HMRC’s post room. Either the notices got lost before reaching it, or they simply failed to come out of it. No notices for the batch of 122 assessments were ever returned as undelivered – which is, of course, consistent with none ever having been posted!

HMRC tried to argue that this was not a problem – notices were eventually delivered, some three years later!

This did not impress the judge. It would, she suggested, make a nonsense of the statutory time limits if they could be sidestepped and ignored due to defects in HMRC’s processes.

“Not only is issue and service essential to the enforceability of an assessment, but that issue and service must have some proximity to the making of it,” said Judge Mosedale. “We do not know where the line should be drawn, but we are sure that HMRC crossed it in this case.”

The assessments were unenforceable and the appeals were allowed.

Were discovery assessments valid?

Not that it mattered in this case, but Judge Mosedale also examined the validity of the discovery process in this scenario.

Apart from fraudulent or negligent conduct (which was not suggested to have been the case), an officer may raise a discovery assessment as long as, by the time the enquiry window into a return has closed, HMRC: “could not have been reasonably expected, on the basis of the information made available to them before that time, to be aware” of the loss of tax.

Langham v Veltema [2004] EWCA Civ 193 makes it clear that the only information HMRC needs to consider is what was supplied by the taxpayer. In this scenario, a shortfall of SDLT only became apparent on examining the Land Registry returns.

In Mr Kothari’s case, the consideration had been left blank on his SDLT return. That alone, the judge considered, would not be enough to alert an officer that there was an insufficiency of tax (or even the risk of one). There were many possible scenarios where a nil consideration might apply (for example a transfer from executor to beneficiary).

HMRC was not precluded from making a valid discovery. Fortunately for Kothari, the assessment, albeit validly made, was unenforceable due to the reasons above.


This is yet another case where HMRC’s internal procedures failed to deliver.

The judge was critical that the assessments were only followed up in 2015. If HMRC had acted earlier, the fact that a batch of over 100 assessments appears to have gone astray might have come to light in time for those assessments to remain enforceable.

Replies (4)

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12th Aug 2019 10:43

Something going wrong in the post room happens all the time at HMRC. It is routine to receive letters generated weeks earlier, which must have been sitting around in batches in their post rooms.

Thanks (6)
By whitevanman
12th Aug 2019 18:02

I'm sure we can all give examples of postal problems with HMRC. Indeed, I seem to recall that things got even worse around 2013 when they moved to central post rooms, adding days (at least) to the time taken for delivery / receipt.
That said, it seems to me that here again we have a case being decided by a judge reading something into legislation that is not there. I would also say this is based on "fact" the judge inferred from the real facts before her, without (in my opinion) considering all the possible explanations.
My whole concern is that we are seeing an increasing number of such issues in cases from the FTT ( more than one from this judge). If we cannot rely on judges to consider the (real) facts and then apply what is written in legislation, taking account of existing case-law to produce sound judgements, it will only lead to greater confusion and uncertainty.

Thanks (1)
By Moo
13th Aug 2019 16:49

So, a batch of 122 assessments didn't make it into the post in time and 6 people included in that batch had their assessments overturned on appeal. What happened to the other 116 assessments in that batch? Are there some embarrassed accountants and solicitors around who advised their clients to pay up not regarding the excessive HMRC time lag?

Thanks (2)
By whitevanman
14th Aug 2019 11:22

There is no evidence that a batch of 122 assessments did not reach the post. Indeed the evidence of the agent is surprisingly vague on that point. The only evidence was that given in respect of the assessments under appeal ( which I assume had to be accepted as there was nothing to contradict it) and the evidence from HMRC that some (unknown number) of the 122 people assessed actually did receive their assessments. This is one of the reasons I find the judgement unsatisfactory and incidentally, an error in Andy's report.

Thanks (0)