WLH Tax has been involved in defending a case at the Upper Tax Tribunal [UTT] where HMRC was trying to argue against the accepted principles governing its power to raise tax assessments where an understated liability has been identified. The legislation governing this is very clear: any such action must be undertaken within the relevant statutory framework which includes various conditions, such as behavioural considerations and assessment time limits.
The background to the matter being heard before the UTT was an earlier hearing before the First Tier Tribunal [FTT] involving the same client. The issues in that case involved the omission of income from the client’s tax returns and the failure was attributable to various stand-alone errors. It was agreed that the underlying behaviour which caused each error varied-some were careless errors, others genuine mistakes and several were deliberate.
HMRC argued at that time that the 20-year time limit for deliberate conduct should apply to support an assessment to tax for all errors, irrespective of whether some of those errors did not arise from deliberate conduct. Errors which are accepted as being due to careless behaviour carry a six-year time limit.
The judge at the FTT rejected HMRC’s argument but subsequently granted HMRC permission to appeal with the matter referred to the UTT.
The UTT has now disagreed with HMRC and ruled that the facts attributable to each error must be considered independently to determine the tax assessment position and what assessments can be validly raised.
This case was very important as had HMRC been successful, it would have resulted in HMRC being able to raise tax assessments for non-deliberate errors in years where there were also deliberate errors, with the previously enshrined time limits no longer relevant.
On a professional level, we are delighted that our arguments were accepted by the UTT, but disappointed that HMRC pursued the case despite the existence of clear legislation which has been in existence for almost 20 years and which has been followed without query by both HMRC inspectors and tax enquiry practitioners alike.
We are currently pursuing a costs order against HMRC for the professional fees incurred by our client in defending this matter.
A link to the decision can be found here: