Commissioners for HM Revenue and Customs v Tooth

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Briggs,Lord Sales,Lord Reed,Lord Leggatt,Lord Burrows
Judgment Date14 May 2021
Neutral Citation[2021] UKSC 17

[2021] UKSC 17

Supreme Court

Hilary Term

On appeal from: [2019] EWCA Civ 826


Lord Reed, President

Lord Briggs

Lord Sales

Lord Leggatt

Lord Burrows

Commissioners for Her Majesty's Revenue and Customs


Hui Ling McCarthy QC

John Brinsmead-Stockham

(Instructed by HMRC Solicitors Office (Bush House))


Julian Ghosh QC

Charles Bradley

(Instructed by Pinsent Masons LLP (London))

Heard on 2 and 3 March 2021

Lord Sales

Lord Briggs AND( with whom Lord Reed, Lord Leggatt and Lord Burrows agree)


The complicated facts of this appeal raise some issues of general importance about the power of Her Majesty's Revenue and Customs (in this context “the Revenue”) to make what is generally known as a discovery assessment. Broadly speaking, if the Revenue are not content with the accuracy of the self-assessment to income tax (and capital gains tax) in a taxpayer's tax return, the Revenue may open an enquiry into the return and amend the assessment. The enquiry must be opened within one year of the filing of a timely return (and slightly longer if the return is late), although it need not be completed within that period. But if the Revenue find out (“discover”) that an assessment is or has become insufficient, then subject to satisfying one or the other of two conditions, they may make a fresh assessment (a “discovery assessment”) in the amount which they think will be sufficient to make good to the Crown the loss of tax. The first condition (which is the one in issue on this appeal) is that the insufficiency of the earlier assessment has been brought about carelessly or deliberately by the taxpayer (or their agent). The standard time limit for the making of an assessment by the Revenue, including a discovery assessment, is four years from the end of the year of assessment to which it relates. But if the insufficiency is brought about by carelessness the time limit is extended to six years, and if it is brought about deliberately by the taxpayer it is extended to 20 years.


In the present case the taxpayer Mr Raymond Tooth filed a return in 2009 which contained his self-assessment of income tax for the 2007–8 year of assessment in an amount which, from the outset, the Revenue officers dealing with his case regarded as understating his true tax liability by almost half a million pounds, by his use of a tax avoidance scheme which they regarded as ineffective for that purpose (“the Romangate scheme”). Whether the Romangate scheme was ineffective or not was a matter of controversy between the Revenue, Mr Tooth and other taxpayers who had used the same scheme, which was only finally resolved in the Revenue's favour (with the assistance of retrospective legislation) at the end of 2013. The Revenue did not protect their position vis-à-vis Mr Tooth in the meantime by opening an enquiry into his return. The legal position at that time was obscure and they wrongly thought that they had protected their position by opening a form of enquiry using a different statutory power, but found out from a ruling by this court in 2013 that this had been ineffective. So the Revenue then issued a discovery assessment, alleging that the insufficiency in Mr Tooth's self-assessment had been brought about deliberately, relying on the 20-year period within which to make the assessment.


It has never been the Revenue's case that, simply by self-assessing in an amount much less than his true income tax liability, Mr Tooth thereby brought about its insufficiency deliberately, although of course he (or his agents) self-assessed in the lower amount intentionally. The Romangate tax avoidance scheme upon which he relied had been vouched as effective (albeit in the end wrongly) by leading tax counsel, and it has never been suggested that Mr Tooth did not genuinely believe that the amount at which he self-assessed was correct (or at least one which it was legitimate for him to put forward). Rather, the Revenue's case is that the online tax return completed on Mr Tooth's behalf contained a deliberate inaccuracy, because a loss which (under the scheme) was designed to be an employment-related loss incurred in the following year of assessment and then carried back, was wrongly inserted into a box on the electronic form reserved for partnership losses, and thereby found its way by deduction into the electronic calculation of the self-assessment tax liability, so as to have caused the insufficiency.


Mr Tooth appealed the discovery assessment to the First-tier Tribunal (“FtT”). He put the Revenue to proof that there had been the requisite discovery. In any event he denied that his return contained an inaccuracy, let alone one which was deliberate. The Revenue pleaded that the discovery had been made by its officer Mr Nigel Williams in October 2014. The FtT accepted the Revenue's case on discovery, but agreed with Mr Tooth that there had been no deliberate inaccuracy in his return. His appeal was therefore allowed.


On the Revenue's appeal the Upper Tribunal (“UT”) found that there had been no discovery in 2014, mainly because the Revenue had formed its own view about the insufficiency in Mr Tooth's return since 2009, and that a discovery in 2009, even if it had been pleaded, would have become “stale” by 2014. The UT also held that there had been no inaccuracy in Mr Tooth's return, read as a whole, and that even if that were wrong, the inaccuracy had not been deliberate.


The Court of Appeal agreed with the UT on the absence of a qualifying discovery but found, by a majority, that there had been a deliberate inaccuracy in Mr Tooth's return. Therefore, by reason of the conclusion on the first point, the Revenue's appeal was dismissed. The Revenue appeals to this court, seeking to restore the FtT's decision that there was a discovery and to uphold the judgment of the majority in the Court of Appeal that there was a deliberate inaccuracy in Mr Tooth's return, while Mr Tooth seeks to restore the conclusion arrived at by the FtT and the UT that there was no deliberate inaccuracy in his return.

The Facts

Mr Tooth's activities during the year of assessment 2007–8 generated income on which, leaving aside his later participation in the Romangate tax scheme, he in fact incurred an income tax liability in excess of £475,000.


On 23 January 2009 Mr Tooth signed the documents requisite for his participation in the Romangate scheme, which was promoted by NT Advisors (“NT”) and sanctioned by leading tax counsel. The scheme was designed to generate (for him) an employment-related loss incurred in the tax year 2008–9 which (so he was advised) he could utilise by setting it against income both for that year and (by way of carry-back) for the previous 2007–8 tax year. On advice Mr Tooth initially sought to utilise £1,185,987 of that scheme-generated loss against his 2007–8 income.


Mr Tooth's tax advisors Grunberg & Co (“Grunberg”) prepared his 2007–8 tax return in January 2009. By then the time had passed to do so on paper and they used IRIS software which is approved by the Revenue. NT had advised that the utilisation of losses derived from the Romangate scheme should be achieved by entering the claimed amount of loss in box 3 on Additional Information (“AI”) page 3, and entering “2007–09” in box 4. But Grunberg found that it was impossible to access box 3 on AI page 3. On enquiry of the IRIS software engineers they were told that this was due to a technical software issue, and that they should enter the loss in some other box, and then explain what they had done in the “white space” included in the form to allow for written explanations to be provided by a taxpayer.


Following this advice, and with NT's confirmation that the method chosen was appropriate, Grunberg entered the loss claimed from their client's participation in the scheme in the following way. First, on page 6 of the main return (“ TR6”) at box 19 they wrote:

“During the tax year ending 5 April 2009, I sustained an employment related loss for which relief is being claimed now in accordance with section 128 ITA 2007. Please refer to the partnership pages of my return. Full details of this loss will be reported on my 2008/09 tax return in due course.”


Then they entered the loss claimed from participation in the scheme (£1,185,987) in boxes 7, 19 and 20 on the Partnership (short) (“SP”) supplementary pages of the return so as to claim the loss as a deduction against income in 2007–8, and set out the following explanation in the Additional Information box 30 on SP2:

“During the year ending 5 April 2009, I sustained an employment related loss for which relief is being claimed now in accordance with the provisions of section 128 ITA 2007 (via section 11 ITEPA 2003). I have reported the details of the loss claimed against my other income using box 3 [sic] above, which relates to a claim for a partnership Loss from this tax year set-off against other income for 2007–08. However, there is no equivalent box to claim relief now for employment related losses despite the provisions of section 128 ITA 2007. Full details of this loss will be reported on my 2008–09 tax return in due course. The loss arose pursuant [sic] arrangements for which a scheme reference is required under DOTAS (from AAG at HMRC) at this time the scheme has not been granted a reference number. When such number is obtained I will report it on my 2008–09 tax return, as that is the year in which the loss arose. I acknowledge that my interpretation of the tax law applicable to the above transactions and the loss (and the manner in which I have reported them) may be at variance with that of HM Revenue and Customs. Further please note that although I have reported (and hereby claim the loss pursuant to section 128 ITA 2007) in box 3 [sic] above I wish to make it clear that the deduction...

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