HMRC Site 'Careless' Behaviour to Avoid Being Time Barred

HMRC Site ‘Careless’ Behaviour to Avoid Being Time Barred

HMRC sometimes miss their own statutory deadlines and then seek to rely on allegations of carelessness to extend the time limits available to them. This case demonstrates why taxpayers should always check time limits as a first line of defence.

The Case

CTM represented the director of a hotel group who faced a £600,000 Discovery Assessment in respect of the 2013/14 personal tax return.

The company had written off the director’s loan account in its March 2016 accounts. A new accountant subsequently contacted HMRC to discuss the tax implications. The Corporation Tax team at HMRC agreed to manage both the company’s Corporation Tax position and the director’s personal tax position arising from the write-off.

HMRC’s Delay

The Corporation Tax team then delayed dealing with the matter until October 2018. By this point, the normal four-year statutory deadline for raising a Discovery Assessment had passed by six months.

To circumvent the time bar, HMRC alleged that the director had been careless in his 2013/14 tax return, which would entitle them to a six-year extended assessment window.

Tribunal Decision

The Tribunal rejected HMRC’s argument. The key finding was that the tax statute contains no requirement for a taxpayer to notify any specific HMRC department about their tax affairs. The director’s accountant had contacted HMRC and the Corporation Tax team had agreed to deal with the matter. The fact that the CT team failed to act within the statutory time limit was HMRC’s failing, not the taxpayer’s.

The £600,000 assessment was reduced to zero.

The Lesson

HMRC miss deadlines at times. Taxpayers and their advisers should always check time limits first when faced with any assessment or enquiry. A Discovery Assessment raised outside the normal four-year window requires HMRC to prove careless or deliberate behaviour, and this is a significant hurdle that HMRC does not always clear.