In May 2019 the Court of Appeal ruled on HMRC’s handling of a dispute over a self-assessment tax return relating to an avoidance scheme. The ruling included helpful pointers for anyone completing a tax return. What did the judges say?

The case

In HMRC and Raymond Tooth 2019 (RT) the argument was about the legality of an HMRC assessment. The Court of Appeal (CA) didn’t need to consider the underlying dispute which involved RT’s use of a tax avoidance scheme in 2007/8 as it was generally accepted that it didn’t work (and subsequently new legislation put the matter beyond doubt). The issue the CA was concerned with was whether HMRC was out of time in demanding the tax due.

Errors in tax returns

When you submit a self-assessment tax return HMRC has a limited period in which it can start an enquiry. For returns submitted by the usual filing deadline it’s one year from that date. For example, for a 2017/18 return the filing deadline was 31 January 2019 and HMRC has until 31 January 2020 to start an enquiry. In RT’s case HMRC started an enquiry in time but used the wrong legislation to do it. As a result it had to close the enquiry and couldn’t start a new one because by that time the deadline had long passed.


Its only chance to collect the disputed tax was to issue a “discovery assessment”. It can do this where it “discovers” an inaccuracy in a tax return which results in too little tax being paid. It has four years in which it can issue a discovery assessment, or six if the error was caused by your carelessness. Where you deliberately made an error in your tax return, e.g. claimed a deduction you knew you weren’t entitled to, it has up to 20 years to issue an assessment.

Appeal – not a discovery

RT appealed against the assessment on the grounds HMRC hadn’t “discovered” an inaccuracy because it was already aware of the disputed avoidance scheme and specifically drawn attention to it. However, he included an explanation for this (and the disputed nature of the scheme) in the notes section of his self-assessment return.

The CA’s decision

The judges decided that RT’s return wasn’t inaccurate based on his view that the avoidance scheme worked. Importantly he had provided an explanation of the scheme with his return. Further, there was no discovery anyway, because HMRC had, when the tax return was submitted, considered the disputed claim (it had started an enquiry), so it could not claim to have discovered it much later.

No discovery. The decision confirms that HMRC can’t use the discovery rules to have a second bite at the cherry. If it has started an enquiry which has proved inconclusive or unsuccessful it can’t issue a discovery assessment unless there’s new information or a new angle to the dispute which had not been considered.

Tip. The judgment confirms the importance of providing explanatory information (plus any supporting documents) with your tax return where an entry is out of the ordinary or involves your interpretation of how the rules work. This won’t stop an enquiry but it will prevent HMRC from issuing a discovery assessment or at least minimise the time in which it has to issue one.