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Hargreaves: Even staler!

29 April 2019

In Hargreaves v HMRC [2019] UKFTT 0244 (TC), the First-tier Tribunal (FTT) has again found that HMRC's discovery of an underpayment of tax had become 'stale' and accordingly the subsequent assessment issued under section 29, Taxes Management Act 1970 (TMA) was invalid.

This blog is based on an article first published in Tax Journal on 24 April. A copy of that article can be viewed here


Once HMRC has discovered a loss of tax to the Crown it must act within a reasonable amount of time if it wishes to issue an assessment under section 29, TMA.  

In Hargreaves, the taxpayer filed his tax returns on the basis that he had ceased to be UK tax resident on 11 March 2000, two months before disposing of shares worth £231 million. On 16 January 2004, following a newspaper article published in March 2003 (which alleged that the taxpayer spent three days each week in the UK), HMRC opened an enquiry into his 2001/02 return. HMRC was out of time to open an enquiry into the return for the prior year in which the share disposal occurred, and on 9 January 2007 issued a discovery assessment pursuant to section 29, TMA, for £84 million in respect of the gain on the share disposal. The taxpayer appealed against the assessment on the basis that it had become stale. 

FTT decision 

The appeal was allowed.

The FTT rejected HMRC's argument that it only made its discovery of the taxpayer's continuing UK tax residence in January 2006, following receipt of a report from the taxpayer's advisers addressing issues raised by HMRC. This was because the officer's evidence was that he had not changed his initial view of November 2004 on the taxpayer's residence status, notwithstanding the information subsequently received. The delay in question ie between March 2003 and January 2006, was considered by the FTT to be sufficient to render the discovery stale and the assessment was therefore invalid.


HMRC has come to rely on its discovery assessment powers a great deal in recent years and has stretched the concept of 'discovery' to an ever expanding variety of circumstances. Clearly concerned by  recent cases, such as Tooth v HMRC [2018] UKUT 38 and Beagles v HMRC [2018] UKUT 380 (TCC),  in which the tax tribunals have held that HMRC's discovery was stale  and the potential check on its powers, HMRC has been resolute that the concept of 'staleness' cannot be discerned from legislation or case law and does not therefore exist. 

The Court of Appeal heard the appeal in Tooth, last month and is due to hear the appeal in Beagles later this year. If the Court of Appeal rejects HMRC's position and confirms that discovery assessments can be invalid due to staleness, it is to be hoped that it will provide guidance on when and how a 'discovery' is likely to become stale as the time periods considered by the tax tribunals to date have varied considerably.   

A copy of the decision can be viewed here.

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