HMRC misused discovery powers, tribunal rules

A TRIBUNAL has ruled that HM Revenue and Customs misused its discovery powers to cover for its own error.

The executors of the estate of David Atkins, a Lloyds underwriter, were awarded legal costs by tribunal judge Howard Nowlan after HMRC dropped its original bill for £13,000.

In the case of Lloyds underwriters, convention dictates that HMRC open an enquiry for all self-assessments in the case of death. This is because of the time lag in insurance claims, which means that the full ramifications of claims made in that tax year are not known for a few years.

However, in this case, HMRC failed to open up an enquiry for the 2007-08 tax return, despite Atkins' accountant reminding officers that this needed to be done, in accordance with HMRC guidelines. Because of this error – which was solely on the part of HMRC – inspectors attempted to open a discovery assessment, through which they found that Atkins' estate was £13,000 in arrears.

Nowlan found that the accountant had acted properly and in accordance with guidelines. The tax return submitted was entirely accurate and HMRC had no right to begin a discovery assessment.

Richard Mannion, national tax director at Smith & Williamson, said: "There has been a feeling in the tax professional community that the Revenue has been making discovery assessments when it likes. But there are boxes that must be ticked before opening a discovery assessment and the Revenue making a mistake is not one of them."