The First-tier Tribunal (FTT) has allowed the appeal against the discovery assessment raised by HMRC in the case of Mr Mohinder Singh (TC01544). The point at issue was whether the information in HMRC’s possession was sufficient to prevent them from making a discovery under s29 TMA 1970.
Following the 2004 case of Langham v Veltema, HMRC need to be put on notice where a return contains an estimate or a potential inaccuracy; otherwise, HMRC are able to use s29 to raise a discovery assessment. The headnote from the case confirms:
The Revenue was shut out from making a discovery assessment under s 29 only when a taxpayer, in making an honest and accurate return, or in responding to an inquiry, had clearly alerted them to the insufficiency of the assessment, not where the Revenue might have some other information that could put the sufficiency of the assessment in question.
The FTT decision released on 4 November 2011 gives hope to advisers on the point of discovery. Mr Singh received compensation from the Post Office for loss of office and included the compensation in his company’s self-assessment return but, importantly, not in his personal tax return. In previous years HMRC had accepted that the income from the Post Office could be incorporated into the company’s returns and did not need to be reported on the personal returns for Mr Singh, so Mr Singh was simply following his previous practice.
The FTT confirmed that technically the compensation was payable to Mr Singh and should have been included on his personal return not the company’s return. However, they also concluded that HMRC:
were out of time in raising the discovery as they were fully aware of the way in which the money from the Post Office had been treated in the past and should, therefore have raised the matter when the return was submitted. Because they did not do so they are out of time.
The decision hopefully indicates a more pragmatic approach to the circumstances in which discovery assessments can be raised.