Cooke: Tribunal allows taxpayer's discovery assessment appeal

18 January 2018

In Cooke v HMRC [2017] UKFTT 844 (TC), the First-tier Tribunal (FTT) has allowed an appeal against a discovery assessment issued by HMRC pursuant to section 29, Taxes Management Act 1970 (TMA). The FTT found that the 'hypothetical officer' could have been reasonably expected to be aware that certain claims in the taxpayer's return were excessive.


The taxpayer claimed relief from double taxation, in respect of foreign dividends from three jurisdictions, two of which were France and Canada, in his tax returns for the 2012/13 and 2013/14 tax years. The 2012/13 return was filed electronically on 22 January 2014 and under section 9A(2)(a), TMA, HMRC had until 22 January 2015 to open an enquiry. No enquiry was opened within this time limit. The taxpayer's 2013/14 return was filed electronically on 17 November 2014. 

HMRC opened an enquiry into the 2013/14 return on 24 September 2015. HMRC concluded that the French and Canadian dividends were excessive, being more than the 15% permitted by the relevant double tax treaties with France and Canada (Article 11 of the UK/France treaty and Article 10 of the UK/Canada treaty). 

HMRC's enquiry into the 2013/14 return led to it checking the 2012/13 return and forming the same conclusion. As HMRC was out of time to open an enquiry into the 2012/13 return, it issued a discovery assessment to the taxpayer in relation to that year pursuant to section 29, TMA. 

The taxpayer appealed to the FTT.

FTT decision

The appeal was allowed.

The issue before the FTT was whether either or both of the conditions in section 29(4) (that the loss of tax was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf) or (5) (at the time the officer ceased to be entitled to give notice of intention to enquire into a taxpayer's return the officer could not have been reasonably expected to be aware of the loss of tax), were satisfied.

HMRC submitted that section 29(4) was satisfied because the taxpayer's accountant had been careless in not checking the correct relief rate available. HMRC also submitted that section 29(5) was satisfied as the return did not disclose adequate or sufficient information to alert the 'hypothetical officer' to a loss of tax. 

The taxpayer argued that his accountant, a general practitioner without specialist knowledge, should not be considered to be careless when relying on computer software to complete his return and his  return did contain sufficient information to alert the 'hypothetical officer', to the loss of tax claimed by HMRC. 

The FTT preferred the taxpayer's arguments.

With regard to section 29(4), the FTT said that in determining what constitutes carelessness, for the purposes of the subsection, all relevant circumstances must be taken into consideration. The taxpayer's accountants were a small firm, with no tax specialists. They relied, like many accountancy firms, on software to complete their clients' returns and, indeed, HMRC encouraged this. It was, therefore, reasonable for the accountants to rely on the software used.

In relation to section 29(5) and relying on Charlton v HMRC [2013] STC 866, the FTT confirmed that the test in section 29(5) was whether a hypothetical HMRC officer could have been reasonably expected to be aware that the relief claimed was excessive. In the circumstances, the FTT concluded that a hypothetical officer could have been reasonably expected to be aware that the relief claimed was excessive as the percentages claimed were clear from the figures in the return and the tax in question was not complex. A white space entry was not required, and any HMRC officer of general competence, knowledge or skill, would have some understanding of double tax relief, including that there are limitations on the relief that can be claimed.


HMRC often seeks to use its discovery assessment powers when it is out of time to open an enquiry. However, taxpayers are entitled to certainty in their tax affairs and indeed that was the quid pro quo when self-assessment was introduced. There can be a tendency for HMRC to issue discovery assessments as a 'get out of jail' card when they would otherwise be out of time to open an enquiry and seek additional tax, and this decision is a timely reminder that certain conditions must be satisfied before HMRC is able to issue a valid discovery assessment. 

Interestingly, the FTT said that HMRC's internal processes are irrelevant when considering section 29. The fact that HMRC's "process first, check later" approach meant it did not identify the mistake until relatively late, was irrelevant. The FTT commented:

"It may well be that s 29(5) does not fit as well as HMRC might like with their current working practices, and in particular the electronic processing of returns, but that is no basis for interpreting the provision in a way that does not accord with what it actually says."

A copy of the decision can be found here.

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