One minute with... Elizabeth Wilson QC, a barrister at Pump Court Tax Chambers.
What’s keeping you busy at work?
An intensive period of online litigation covering income tax, capital allowances, SDLT, tonnage tax, and petroleum revenue tax appeals. The intensity was due in part to cases that had been cancelled during the first lockdown being relisted.
Litigating online has been a steep learning curve but we’ve got there. I hope it remains as an option in the future. It’s particularly effective for shorter appeals, or cases which turn on a tricky point of statutory interpretation. But there is no doubt that it has its challenges. It takes real concentration to read a (virtual) room while making a meaningful connection with the tribunal or the witness. A screen feels very one dimensional. I have also been in the middle of making what I thought was a nice point and then seeing the judges in their boxes pixelating or jumping about the screen and so we all have to start again.
Is there a recent tax case that has caught you eye?
The judgment of the Supreme Court in Tooth. It addresses important procedural points concerning the validity of ‘discovery’ assessments. It is relevant to personal tax, corporation tax, and stamp duty land tax.
Very broadly, if HMRC discovers that an amount of tax that ought to have been assessed has not been assessed, or that an assessment to tax is or has become insufficient or that a relief has been given which ought not to have been given, it may raise an assessment to make good that situation. The concept of a ‘discovery’ contemplates that an actual officer will have a particular state of mind in relation to a relevant matter, which means that the test is subjective. Where a relevant discovery is made, statute lays down time limits for the subsequent raising of an assessment.
The problem was that in the case of Charlton an additional test of staleness emerged. In Charlton it was said that a discovery could lose its quality as a discovery if there was a delay after it was made and before the assessment was raised. It left open how long the delay would need to be to invalidate the assessment.
Inevitably, the addition of an evolving fact-sensitive test added to the length and complexity of hearings. HMRC would adduce documentary and witness evidence to explain why the period between the discovery and the assessment was such that the discovery remained ‘fresh’ or ‘new’. Where there was significant delay, HMRC would need to justify the delay or lose the appeal on this new procedural ground. In practice, half a day to a day of the hearing could be taken up with evidence and argument on the precise point at which something that was clearly a discovery had crystallised as such; for the simple reason that the earlier the date of discovery relative to the assessment the greater the chance the discovery was stale.
When justifying delay, it was not uncommon for the tribunal to drily ask whether this exercise was effectively a judicial review of the actions of HMRC smuggled into a tax appeal.
All of this complexity and uncertainty has now (I hope) been swept away. The Supreme Court is clear that there is no place for the idea that a discovery should cease to be a discovery by the passage of time. That is unsustainable as a matter of ordinary language. Further to import such a notion of staleness conflicts with the statutory scheme. The statutory scheme allows an assessment at any time up to the expiry of the statutory time limit.
Obviously, the decision will not be welcome to all taxpayers, particularly those with forthcoming appeals. However, it is worth noting that when dealing with the ‘deliberate’ limb of the first condition for raising a discovery assessment (i.e. that the insufficiency was brought about carelessly or deliberately), the Supreme Court pulled back from a wide meaning of ‘deliberate’ (as mere intent). It held that the concept of ‘deliberate’ behaviour would require a taxpayer or his advisers to know that the relevant statements were inaccurate and intend thereby to mislead HMRC. In the case of Mr Tooth, who did his best in the context of ‘an intractable online return’ to make an accurate return, the ‘deliberate’ limb was not met. It followed that Mr Tooth won the day.
What should we be looking out for later this year?
Further insight into the loan relationships unallowable purpose test!
One minute with... Elizabeth Wilson QC, a barrister at Pump Court Tax Chambers.
What’s keeping you busy at work?
An intensive period of online litigation covering income tax, capital allowances, SDLT, tonnage tax, and petroleum revenue tax appeals. The intensity was due in part to cases that had been cancelled during the first lockdown being relisted.
Litigating online has been a steep learning curve but we’ve got there. I hope it remains as an option in the future. It’s particularly effective for shorter appeals, or cases which turn on a tricky point of statutory interpretation. But there is no doubt that it has its challenges. It takes real concentration to read a (virtual) room while making a meaningful connection with the tribunal or the witness. A screen feels very one dimensional. I have also been in the middle of making what I thought was a nice point and then seeing the judges in their boxes pixelating or jumping about the screen and so we all have to start again.
Is there a recent tax case that has caught you eye?
The judgment of the Supreme Court in Tooth. It addresses important procedural points concerning the validity of ‘discovery’ assessments. It is relevant to personal tax, corporation tax, and stamp duty land tax.
Very broadly, if HMRC discovers that an amount of tax that ought to have been assessed has not been assessed, or that an assessment to tax is or has become insufficient or that a relief has been given which ought not to have been given, it may raise an assessment to make good that situation. The concept of a ‘discovery’ contemplates that an actual officer will have a particular state of mind in relation to a relevant matter, which means that the test is subjective. Where a relevant discovery is made, statute lays down time limits for the subsequent raising of an assessment.
The problem was that in the case of Charlton an additional test of staleness emerged. In Charlton it was said that a discovery could lose its quality as a discovery if there was a delay after it was made and before the assessment was raised. It left open how long the delay would need to be to invalidate the assessment.
Inevitably, the addition of an evolving fact-sensitive test added to the length and complexity of hearings. HMRC would adduce documentary and witness evidence to explain why the period between the discovery and the assessment was such that the discovery remained ‘fresh’ or ‘new’. Where there was significant delay, HMRC would need to justify the delay or lose the appeal on this new procedural ground. In practice, half a day to a day of the hearing could be taken up with evidence and argument on the precise point at which something that was clearly a discovery had crystallised as such; for the simple reason that the earlier the date of discovery relative to the assessment the greater the chance the discovery was stale.
When justifying delay, it was not uncommon for the tribunal to drily ask whether this exercise was effectively a judicial review of the actions of HMRC smuggled into a tax appeal.
All of this complexity and uncertainty has now (I hope) been swept away. The Supreme Court is clear that there is no place for the idea that a discovery should cease to be a discovery by the passage of time. That is unsustainable as a matter of ordinary language. Further to import such a notion of staleness conflicts with the statutory scheme. The statutory scheme allows an assessment at any time up to the expiry of the statutory time limit.
Obviously, the decision will not be welcome to all taxpayers, particularly those with forthcoming appeals. However, it is worth noting that when dealing with the ‘deliberate’ limb of the first condition for raising a discovery assessment (i.e. that the insufficiency was brought about carelessly or deliberately), the Supreme Court pulled back from a wide meaning of ‘deliberate’ (as mere intent). It held that the concept of ‘deliberate’ behaviour would require a taxpayer or his advisers to know that the relevant statements were inaccurate and intend thereby to mislead HMRC. In the case of Mr Tooth, who did his best in the context of ‘an intractable online return’ to make an accurate return, the ‘deliberate’ limb was not met. It followed that Mr Tooth won the day.
What should we be looking out for later this year?
Further insight into the loan relationships unallowable purpose test!
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