TC09619 - [2025] UKFTT 01020 (TC)

The Upper Tribunal decision in Jerome Anderson v HMRC [2018] UKUT 0159 (“Anderson”) makes it clear that the discovery process which must be undertaken by the relevant officer has two limbs. The subjective limb (namely the officer must believe that the information available to him points in the direction of there being an insufficiency of tax) and an objective limb (the officer’s belief is one which a reasonable officer could form).

The thresholds for the subjective and objective limbs for making a discovery are low. All HMRC have to show is that Officer Bennett believed that the information available to him pointed in the direction of there being an insufficiency of tax. And that his belief that there was that insufficiency is objectively reasonable. The officer must act honestly and reasonably. The reason for the officer concluding that there is an insufficiency can be for any reason, including a change of view, change of opinion, or correction of an oversight.

The usual way in which HMRC establish that these limbs are satisfied is to call the assessing officer as a witness. That has not been possible in this case. The oral evidence relating to the validity of the making of the discovery has been given by JC. He explained the actions of Officer Bennett and concluded that he, JC, would have come to the same conclusions. But that does not, of itself, show that Officer Bennett satisfies both limbs of the test.

However, there is evidence of what he did in the discovery assessment letter dated 10 March 2023. In that letter he explains that he is proposing to issue discovery assessments to protect HMRC’s position and gives reasons for his assessments. This clearly demonstrates that he considered the information that he had been provided with up to that point. That included the original tax returns for the tax years in question, the amendments made by the appellant to his 2019/2020-2021/2022 tax returns (set out in Appendix 2) and the information provided by the appellant in his correspondence before that date, including the assertion that the appellant did not have original documents to justify the claims due to the rodent infestation.

The letter 10 March 2023 records the fact that the appellant had claimed PAYE expenses, which the officer had rejected either because they were not eligible for tax relief or they had not been incurred.

So the officer had clearly considered information that he had before him and had come to the belief that it pointed in the direction of there being an insufficiency (the subjective limb). Furthermore, it is our view that the officer’s belief was an objectively reasonable one based on the evidence which we have recited above (the objective limb). So, Officer Bennett made a valid discovery.

In order to establish that a valid assessment based on that discovery has been made, HMRC must fulfil one of the conditions set out in section 29 (4) or section 29 (5) TMA. These are set out below:

As regards section 29 (4) and following Mullens v HMRC [2023] UKUT 00244 (“Mullens”) it is our view that whilst it is the tribunal’s function to determine whether the appellant has been “guilty” of careless or deliberate behaviour, HMRC must establish not only that at the time they had evidence of either behaviour, but also that they had considered it (or rather the assessing officer had considered it) at the time of issuing the assessment.

All that HMRC need to show is that there was prima facie evidence of either behaviour which was considered by Officer Bennett when concluding that there was insufficiency in the appellant’s tax return. This is consistent with the officer’s obligations to have considered the information available to him and to act honestly and reasonably. This is a low bar. It is not for HMRC to determine carelessness, that is a matter for this tribunal. But the officer must have prima facie evidence which he has considered.

Unfortunately for HMRC, we are not satisfied that they have shown that Officer Bennett considered either careless or deliberate behaviour, by the appellant, at the time that he made his discovery and issued the discovery assessments. JC’s evidence was that that discovery was made on 9 March 2023. In his witness statement he says that it was Arriva’s confirmation in the summer of 2023 (he says 5 June 2023 but the evidence that we have seen suggests it was August 2023) which confirmed that the appellant’s role as a bus driver did not have any requirement to claim any expenditure which “led Officer Bennett to determining [the appellant’s] behaviour in claiming these expenses as deliberate which is why the penalties totalling £10,928.23 were issued on 19 April 2024”.

But in his oral evidence he said that the appellant’s behaviour was not considered until after the discovery assessments had been issued, and it was only considered in connection with the penalty.

This evidence, therefore, does not lead us to conclude that Officer Bennett, on the balance of probabilities, considered the evidence of careless or deliberate behaviour at the time of making the assessment. He might well have done so, but the failure by HMRC to call him means that the secondary evidence is insufficient to discharge HMRC’s burden of proof.

Ms Aziz suggests that there is evidence that the officer did consider deliberate behaviour in HMRC’s letter of 16 September 2022 in which they say “Any decision to amend your self-assessment return to the original figures will be reviewed by HMRC, as it may constitute a deliberate act and may result in a penalty”.

We reject this is evidence that at that time Officer Bennett had considered the appellant’s behaviour to be either careless or deliberate. It simply, in the context of amending a self-assessment return, observes that the appellant should be careful before amending a return as a decision to do so might constitute a deliberate act.

Accordingly, we reject the validity of the discovery assessments on the basis that they satisfy the conditions set out in section 29 (4) TMA.

However, it is argued that the discovery assessments do comply with section 29 (5) TMA and are thus valid. We accept Ms Aziz’s submission that the hypothetical officer could not have been expected to have been aware of the insufficiencies in the appellant’s tax returns for 2016/2017-2018/2019 at the time that the enquiry windows closed for those returns. The information on which the hypothetical officers’ knowledges tested is, in this case, the information set out in the appellant’s tax returns. It would not have been possible from those returns for the hypothetical officer to be aware of the details of the excessive claims (as to which see below) made by the appellant in those returns.

We are therefore of the view that the discovery assessments were valid assessments.

The standard time limit within which such assessments can be issued is four years from the end of the year of assessment in question, but this can be extended to 6 years where HMRC can establish careless behaviour and 20 years where HMRC can establish deliberate behaviour.

Following Mullens, HMRC must be able to demonstrate careless or deliberate behaviour on the part of the appellant. However, in contrast to the need to show that prima facie evidence of this was considered by the officer at the time of issuing the assessment (as is required for the purposes of s29 (4) TMA) all HMRC have to do is show that the appellant has been guilty of culpable behaviour (see Mullens at [69(2)(d)]).

For the reasons set out in [58-64] below we have concluded that the insufficiency in the appellant’s returns was caused by his deliberate behaviour.

So HMRC can rely on the extended 6 or 20 year time periods, which means that the discovery assessments which were issued on 10 March 2023 are valid in time assessments.