Crowe's Tax Investigations team took the case to the tax tribunal way back in September 2017 and secured a victory for our client, John Hicks. It was a long and difficult hearing lasting four and a half days.
The decision was released in January 2018, four months after the case began and is 37 pages long.
Facts of the case
The case was complicated covering many things, primarily:
- HMRC’s ability to issue discovery assessments after the enquiry window has closed, including at what stage has the client provided enough data to HMRC
- whether the relevant time limits had passed or could be extended
- the effect of reliance of a professional tax advisor
- in what circumstances the negligence (if any) of that tax advisor can change matters.
The outcome was a victory with the appeal being allowed thereby invalidating HMRC’s discovery assessments.
The case is important to the tax world generally as it contains numerous points of principle. Key issues decided in our client’s favour and which are of wider interest generally are outlined below.
- An actual HMRC officer can discover at any time that tax has been underpaid. However, there is a further requirement that a hypothetical officer could not reasonably have been aware that a tax underpayment existed at the time an enquiry window closed based on the information provided by the client or their advisor.
- Discovery of tax underpaid is about ‘crossing a threshold’ and not ‘polishing an argument into a knockout case’. There is an expectation that an inspector will raise the assessment as soon as the threshold is crossed.
- Carelessness can be by either the taxpayer or someone acting on their behalf. However, a person only acts on behalf of the client if they are acting as the client’s representative or proxy. The person must represent and not merely provide advice to the client.
- A client is entitled to rely on professional advice in preparing and submitting his returns (even if that advice is wrong) particularly if the client is lacking real expertise. This is a restatement of the 2016 Bayliss case also won by the Tax Investigations team although this concerned penalties rather than discovery assessments.
- It is not necessarily careless to enter into a packaged tax avoidance scheme, even in the knowledge that HMRC may challenge it.
The case highlights how important it is to seek advice from a professional with an excellent knowledge of the relevant legislation, HMRC’s powers, taxpayer rights and safeguards.
If you would like to discuss this or any case involving discovery assessments or penalties, please call John Cassidy on 020 7842 7356 or Sean Wakeman on 020 7842 7285.