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'Staleness' and discovery: where are we now following the judgment in Tooth?

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The concept of ‘staleness’ purports that an assessment will not be valid unless the discovery which underlines it is sufficiently new or fresh. Once HMRC has ‘discovered’ a loss of tax it must act within a ‘reasonable’ amount of time to issue an assessment. HMRC’s position is that the concept cannot be discerned from legislation or case law and thus does not exist.  However, a number of cases have set limited precedent: Hargreaves v HMRC [2019] UKFTT 0244 (TC); Gordon and others v HMRC [2018] UKFTT 307; Beagles v HMRC [2018] UKUT 380 (TCC) and Charman v HMRC [2018] UKFTT 765 (TC).

The Court of Appeal decision in HMRC v Tooth [2019] EWCA Civ 826  was expected to provide some clarity. However, although increasing the weight of authority behind the concept of 'staleness', it does not provide as clear and settled authority as people were hoping.

At the Upper Tribunal, HMRC’s appeal failed on the finding there was no deliberate inaccuracy. The inclusion of an inaccurate figure could be deliberate but it is not automatically so. As Mr Tooth had taken steps to draw the point to HMRC’s attention, the taxpayer’s conduct did not entitle HMRC to assess out of time. Additionally, the tribunal found that HMRC made the discovery in 2009 and as the assessment should normally follow whilst the discovery is new, a five-year delay meant that the assessment was invalid.

At the Court of Appeal, HMRC seems to have sought to avoid the 'staleness' point, by arguing that there was a discovery in 2014 shortly before the assessment was raised. Yet, as Floyd LJ holds (at para 68), HMRC had failed even to plead or argue a coherent case of 'discovery'; HMRC had not established that it had made a valid discovery assessment and he dismissed HMRC’s appeal on this issue. At para 60, Floyd LJ expressly approves the UT's finding in Charlton [2013] STC 866 that 'if an officer has concluded that a discovery assessment should be issued, but for some reason the assessment is not made within a reasonable period after that conclusion is reached, it might, depending on the circumstances, be the case that the conclusion would lose its essential newness by the time of the actual assessment'.

Notwithstanding, the reason for the judgment is that HMRC failed to show any 'discovery', not that there was a discovery which was not acted on within a reasonable time,  this judgment is helpful to taxpayers in increasing the weight of authority behind the concept of 'staleness'.

Whether or not HMRC seeks leave to appeal against this particular judgment, it seems the issue of ‘staleness’ is still not settled. The Court of Appeal is due to hear the appeal in Beagles later this year and it is hoped this will provide greater clarity and certainty.