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.
Frequently asked questions
Can HMRC raise a discovery assessment after four years?
Under the normal rules HMRC has four years to raise a Discovery Assessment. To raise one outside that window, HMRC must prove careless or deliberate behaviour by the taxpayer. An allegation of carelessness can give HMRC a six-year extended assessment window, but proving it is a significant hurdle that HMRC does not always clear.
Why did the Tribunal reject HMRC's carelessness argument in this case?
The director's new accountant had contacted HMRC about the write-off of the director's loan account, and HMRC's Corporation Tax team agreed to deal with both the company and personal tax positions. The Tribunal found the tax statute contains no requirement to notify any specific HMRC department, so the team's failure to act in time was HMRC's failing, not the taxpayer's.
What should I check first when HMRC raises a tax assessment?
Taxpayers and their advisers should always check the time limits first when faced with any HMRC assessment or enquiry. HMRC miss deadlines at times, and an assessment raised outside the normal four-year window can only stand if HMRC proves careless or deliberate behaviour on the part of the taxpayer.
How late was HMRC in raising the £600,000 assessment?
The assessment concerned the director's 2013/14 personal tax return following the write-off of his loan account in the company's March 2016 accounts. HMRC's Corporation Tax team delayed dealing with the matter until October 2018, by which point the normal four-year deadline for a Discovery Assessment had passed by six months.
Related Posts
The Kittel Principle
Mecsek
Appeal the Tax Assessment, not just the Deliberate Penalties
