Revenue and Customs v Tooth [2021] UKSC 17

Mr Tooth used a tax avoidance scheme and completed his self-assessment return by entering an employment-related loss in a partnership box due to software limitations, with full explanations provided. HMRC sought to issue a discovery assessment claiming deliberate inaccuracy. The Supreme Court held there was no deliberate inaccuracy as the return, read as a whole, was accurate and not intended to mislead.

Facts

Mr Raymond Tooth participated in the Romangate tax avoidance scheme in January 2009, which purported to generate an employment-related loss that could be carried back to offset his 2007-8 income tax liability of over £475,000. When completing his online tax return, his advisors encountered a technical issue preventing them from entering the loss in the appropriate employment-related box. Following software engineers’ advice, they entered the loss in the partnership pages instead, providing detailed explanations in the white space sections clarifying that this was an employment-related loss from 2008-9 being carried back, not a partnership loss.

HMRC did not open a section 9A enquiry into the return within the required timeframe, instead mistakenly opening a Schedule 1A enquiry which was later found ineffective following the Supreme Court’s decision in Cotter. In October 2014, HMRC issued a discovery assessment under section 29 of the Taxes Management Act 1970, alleging that Mr Tooth had deliberately brought about an insufficiency of tax by the manner in which his return was completed.

Issues

Deliberate Inaccuracy

The principal issue was whether Mr Tooth’s return contained a ‘deliberate inaccuracy’ within section 118(7) of the TMA, which would satisfy the first condition under section 29(4) for making a discovery assessment with an extended 20-year time limit.

Discovery

A secondary issue was whether HMRC had proved the requisite ‘discovery’ under section 29(1), including whether a discovery could become ‘stale’ and whether collective knowledge of HMRC was relevant.

Judgment

The Meaning of ‘Deliberate Inaccuracy’

Lord Briggs and Lord Sales, delivering the unanimous judgment, held that ‘deliberate inaccuracy’ requires an intention to mislead HMRC on the part of the taxpayer, or possibly recklessness as to whether it would do so. The Court rejected HMRC’s argument that ‘deliberate’ merely meant ‘intentional’:

It may be convenient to encapsulate this conclusion by stating that, for there to be a deliberate inaccuracy in a document within the meaning of section 118(7) there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so.

Interpretation of the Document

The Court held that accuracy must be assessed by reading the document as a whole, not by applying ‘tunnel-vision’ to individual boxes:

A document written in the English language (or any language other than computer language) does not have a different meaning depending upon whether it is read by a human being or by a computer. A choice by the recipient of such a document to have it machine-read cannot alter its meaning.

Applied to Mr Tooth’s return, the Court found no inaccuracy at all when reading the partnership entries together with the detailed explanations provided in the white spaces.

Discovery

On the discovery issue, the Court rejected the notion that a discovery could become ‘stale’ or that collective knowledge of HMRC was relevant. The question is whether the individual officer making the assessment has subjectively discovered an insufficiency:

The question whether there is a discovery for the purposes of section 29(1) depends upon the state of mind of the individual officer of the Revenue who decides to make the assessment.

The Court overruled the ‘staleness’ doctrine from Charlton and confirmed that statutory time limits, not any implied staleness requirement, protect taxpayers.

Implications

This decision provides important clarification on three matters: (1) ‘deliberate inaccuracy’ requires an intention to mislead, placing it on the scale of culpability significantly above mere carelessness; (2) tax returns must be interpreted as whole documents, including any explanatory text; (3) discovery assessments depend on the subjective state of mind of the assessing officer, without any concept of collective HMRC knowledge or staleness. The judgment reinforces that the statutory time limits are the primary protection for taxpayers, with additional safeguards available through judicial review of any abuse of the discovery assessment power.

Verdict: Appeal dismissed. The discovery assessment was invalid because there was no deliberate inaccuracy in Mr Tooth’s tax return. The return, read as a whole with the explanatory text provided, was accurate and there was no intention to mislead HMRC.

Source: Revenue and Customs v Tooth [2021] UKSC 17