Not too long ago, the First-tier Tribunal finally came to a verdict on an extensive disagreement over the legitimacy of tax assessments. The primary problem was the concern over the taxpayer's delay leading HMRC to increase the time limit for the inquiry. What was the result?
Prior to diving into the case, it makes sense to set out the tax rules at the focal point of the issue between HMRC and Mr Adam. The rules in question are linked to the so-called discovery assessments, which enable HMRC to issue tax notices for past years where the organisation believes the individual didn’t pay the full tax amount due to an error or oversight of tax returns.Assuming it happened regardless of the individual doing all that’s necessary to keep it from happening, HMRC can return to four years. If the mistake was the result of the individual’s negligence, then HMRC can go back to six years and assuming that the mistake was conscious, it can return 20 years. For this situation, HMRC was aiming for the most time it could be granted.
Adam was notorious for poorly managed tax affairs and was often tardy in submitting his tax returns. As a warning, HMRC sent him "determinations". These are tax requests that HMRC estimates an individual owes. Adam submitted payments against the determinations. HMRC increased its demands, and Adam ended up paying again. Trap. An individual can’t appeal against determinations. The best way to get rid of them is by paying up the remaining tax returns for which the determinations were issued.
A few years later, HMRC chose to up the ante again. It had reasoned that if Adam had the capacity to pay the determinations, he was capable of paying for this. This finding provoked HMRC to go back four to eight years and enquire into Adam’s tax returns.When this came to Adam’s notice, he paid his overdue taxes plus the additional fee required to halt the discovery assessment. The first assessment was dropped and requests for the following ones were eventually accepted by the Tribunal.
In light of the time limits that we have described above, two of the discovery assessments can only be applied in the case that Adam’s tardiness was on purpose. Whereas, for the rest of the assessment to be valid, HMRC only had to prove that Adam had been negligent. For the years that were eligible for assessment, HMRC found out that Adam had two ventures, one making profits and the other losses. Back then, Adam had sought advice from his accountant regarding the two businesses, who told him that he didn't owe any tax. However, this didn't turn out to be completely true.
The Tribunal decided that Adam had been negligent however had not on purpose avoided the payments. The delayed filing of tax returns was not intentional because Adam genuinely (although mistakenly) had thought that no tax was applied to his earnings based on the advice of his accountant. Consequently, two of the total assessments were made void based on the fact that they were issued later than the approved limit (six years) for negligence.Our view.
Burying your head in the sand can’t be favourable for too long. HMRC will continue to probe the taxpayer until it gets a response. Adam could have just avoided incurring huge charges by just staying on top of his taxes initially. An example we could all learn from!
