When HM Revenue and Customs (HMRC) find out that tax has been under-declared, the response is normally to raise a 'discovery assessment' to collect the tax due. This is usually the result of a period of investigation, and penalties and interest are also levied.
When HMRC discovered that a Stamp Duty Land Tax (SDLT) mitigation scheme had been entered into by thousands of people, the response was to issue discovery assessments to all those involved.
Curiously, however, a group of six people did not receive any assessments until many years later. They then wished to appeal against the assessments on the ground that they were 'stale' – too late to be valid. HMRC's stance was that the time at which this could be done had passed and the assessments should stand, although in another twist, HMRC had given two of the taxpayers (a husband and wife) permission to appeal out of time.
Eventually, HMRC accepted that the six had not received their assessments until many years after they were purportedly made and agreed not to object to the appeals being heard even though they were late.
Therefore, the questions that faced the First-tier Tribunal (FTT) were:
- Were the assessments ever actually made?
- If they were made, were they ever actually issued? and (with regard to one taxpayer)
- Was the 'discovery assessment' validly made?
The FTT considered carefully the evidence regarding the making of the assessments by HMRC and concluded they had been made, but not validly delivered, in 2013. However, HMRC's failure to deliver them to the taxpayers until 2018 rendered them invalid. In any event, the time would have begun to run on the taxpayers' rights of appeal only when the assessments had been validly served.
The taxpayers were in luck. HMRC's failure to follow their own procedures properly meant that the taxpayers had not been served with the relevant assessments until it was too late for them to be valid.
One of the interesting aspects of the case is that it highlights an HMRC tactic. The judge put it thus: 'HMRC had a unit looking at identifying SDLT avoidance. It concentrated on SDLT returns made by taxpayers who had instructed agents which HMRC considered had implemented SDLT avoidance schemes. HMRC obtained the relevant Land Registry returns and looked for discrepancies between the declared price paid on Land Registry forms and on the SDLT returns of those taxpayers.'
HMRC are on the lookout for firms that run tax avoidance schemes and that seem to represent the sort of client that 'takes liberties'.