A step too far by HMRC?

Tax return errors by individuals are not uncommon but unfortunately can have serious consequences. For example, HM Revenue and Customs (HMRC) can impose penalties for inaccuracies in tax returns. The level of penalty broadly depends on whether the inaccuracy was ‘careless’ or ‘deliberate but not concealed’ or ‘deliberate and concealed’, subject to reductions based on the degree to which the person discloses the inaccuracy to HMRC.

A bigger ‘window’

Another consequence of tax return errors is that the period for which HMRC may go back in time to assess tax is potentially extended. The ordinary time limit for HMRC to make a discovery assessment for income tax and capital gains tax (CGT) purposes is up to four years after the end of the tax year to which it relates. However, if HMRC makes a valid discovery that a loss of tax has been brought about carelessly, the time limit for assessing the tax increases to six years. The time limit is extended to 12 years for income tax, CGT, and inheritance tax involving offshore
matters or offshore transfers. Alternatively, if the loss of tax is brought  about deliberately, HMRC may make a discovery assessment up to 20 years after the end of the relevant tax year (TMA 1970, ss 29, 34, 36, 36A). Consequently, identifying the type of tax return inaccuracy discovered (i.e., not careless or deliberate, or careless, or deliberate) can have an important bearing on the number of tax years that can be assessed by HMRC.

Not all errors are necessarily the same

What is the discovery assessment time limit if multiple errors are identified in a tax year, some of which are careless and others deliberate? Can HMRC adopt a ‘blanket’ approach and use the longer, 20-year time limit for all of them? Thankfully, it seems not. In Revenue and Customs v Harte [2026] UKUT 112 (TCC), following an enquiry, HMRC issued to the taxpayer (SH) a closure notice and various discovery assessments. SH appealed, including against six discovery assessments issued on 3 July 2018 for the tax years 2009/10 to 2015/16 (except 2014/15). Four categories of insufficiency were identified. The First-tier Tribunal (FTT) found that one insufficiency (i) was deliberate; two insufficiencies (iii) and (iv) were careless; and one insufficiency (ii) was a mistake despite SH having taken reasonable care. HMRC argued that once deliberate conduct had been established in connection with the insufficiency in (i), HMRC could assess for both insufficiency (i) and (ii) even though the latter insufficiency was not brought about by deliberate or careless conduct, and that the 20-year time limit applied. However, the FTT held that showing one type of conduct for one of the insufficiencies reflected in an assessment did not allow HMRC to include in the assessment other insufficiencies not arising from that type of conduct. HMRC appealed. However, the Upper Tribunal (UT) dismissed HMRC’s appeal. The UT considered that the FTT interpreted the discovery and extended time limit provisions correctly. Thus, the FTT was entitled to treat insufficiency (ii), found to have arisen despite reasonable care, as outside the permitted scope of the assessments. The same analysis justified its treatment of insufficiency (iii) and (iv) in 2009/10 to 2011/12 as not assessable on a deliberate basis.

Practical tip

The UT’s decision is good news for taxpayers, as it means that HMRC must consider each tax return inaccuracy separately instead of automatically adopting the worst-case scenario automatically.