InC Beagles v HMRC[2018] UKUT 380 (20 November 2018), the UT found that a discovery assessment was not valid as the discovery had become stale.
Mr Beagles had implemented arrangements, marketed by KPMG, designed to create a tax loss without a corresponding taxable amount. These were essentially the same arrangements as those which the Court of Appeal had found to be unsuccessful in Astall [2010] STC 137.
HMRC missed the deadline to open an enquiry into Mr Beagles’ return. When it realised this in June 2004, it initially decided to defer taking any action in relation to Mr Beagles’ return until further progress had been made in the challenges against the tax returns of the other participants in the KPMG scheme, in relation to which enquiries had been opened. Then, in August 2005, HMRC notified KPMG that it had received advice from leading counsel that the scheme did not achieve its aims and that it intended to challenge the scheme before the courts. It did not issue a discovery assessment to Mr Beagle until August 2008.
Mr Beagle appealed against the assessment on the ground, inter alia, that the discovery had become ‘stale’ by the time the assessment was issued. His appeal was put on hold until the determination of the litigation in Astall in February 2010.
The UT first observed that Pattullo [2016] STC 2043 is authority for the proposition that a discovery can become stale. It also observed that HMRC’s letter (which referred to Mr Beagles’ return) was evidence that HMRC was aware of the insufficiency of tax in Mr Beagles’ return in August 2005. By that date, HMRC was of the view that the scheme did not operate to create a loss and was aware of the insufficiency in Mr Beagles’ return. The subjective and objective tests in Anderson [2018] STC 1210 were met. The UT added that the FTT had made an error of law when finding that the discovery had taken place following the decision in Astall. The insufficiency of tax could not ‘newly appear’ to the relevant officer twice.
HMRC also contended that it had been waiting for the determination of Astall (relying on Charlton [2013] STC 866), so that the discovery was not stale. The FTT noted, however, that there was no ongoing litigation at the time of the discovery. The circumstances were therefore different from Charlton.
Why it matters: The UT accepted that, in August 2005, Corbally-Stourton [2008] STC 907 had not been decided and so there was no case law suggesting that a discovery could go stale. However, two and half years had passed between the discovery and the issue of the assessment. The UT concluded: ‘In our judgment, if there is a concept of staleness at all, then we believe it arises on the facts of this case.’
InC Beagles v HMRC[2018] UKUT 380 (20 November 2018), the UT found that a discovery assessment was not valid as the discovery had become stale.
Mr Beagles had implemented arrangements, marketed by KPMG, designed to create a tax loss without a corresponding taxable amount. These were essentially the same arrangements as those which the Court of Appeal had found to be unsuccessful in Astall [2010] STC 137.
HMRC missed the deadline to open an enquiry into Mr Beagles’ return. When it realised this in June 2004, it initially decided to defer taking any action in relation to Mr Beagles’ return until further progress had been made in the challenges against the tax returns of the other participants in the KPMG scheme, in relation to which enquiries had been opened. Then, in August 2005, HMRC notified KPMG that it had received advice from leading counsel that the scheme did not achieve its aims and that it intended to challenge the scheme before the courts. It did not issue a discovery assessment to Mr Beagle until August 2008.
Mr Beagle appealed against the assessment on the ground, inter alia, that the discovery had become ‘stale’ by the time the assessment was issued. His appeal was put on hold until the determination of the litigation in Astall in February 2010.
The UT first observed that Pattullo [2016] STC 2043 is authority for the proposition that a discovery can become stale. It also observed that HMRC’s letter (which referred to Mr Beagles’ return) was evidence that HMRC was aware of the insufficiency of tax in Mr Beagles’ return in August 2005. By that date, HMRC was of the view that the scheme did not operate to create a loss and was aware of the insufficiency in Mr Beagles’ return. The subjective and objective tests in Anderson [2018] STC 1210 were met. The UT added that the FTT had made an error of law when finding that the discovery had taken place following the decision in Astall. The insufficiency of tax could not ‘newly appear’ to the relevant officer twice.
HMRC also contended that it had been waiting for the determination of Astall (relying on Charlton [2013] STC 866), so that the discovery was not stale. The FTT noted, however, that there was no ongoing litigation at the time of the discovery. The circumstances were therefore different from Charlton.
Why it matters: The UT accepted that, in August 2005, Corbally-Stourton [2008] STC 907 had not been decided and so there was no case law suggesting that a discovery could go stale. However, two and half years had passed between the discovery and the issue of the assessment. The UT concluded: ‘In our judgment, if there is a concept of staleness at all, then we believe it arises on the facts of this case.’
