Drilling Down: Mr Tooth and the Tax Return

Published on 7th April 2022

A complex Supreme Court case in 2021 ended in taxpayer victory – and a takeaway message. 

The 2021 Tooth v HMRC case questioned whether Mr Tooth provided deliberate tax inaccuracy, therefore justifying HMRC’s discovery assessment, or not.

Background

Unable to get software to enter key information in the right box on the Employment page of his self-assessment tax return, Mr Tooth and his advisers decided to put it on a partnership page of the return instead, using an ‘obviously artificial’ tax reference number, 99999 99999, to facilitate that.

The Judgement

HMRC issued a discovery assessment, maintaining that the return was deliberately inaccurate. ‘Deliberate inaccuracy’ allows HMRC much more time to assess any loss of tax and to impose higher penalties.

The Court held that Mr Tooth had no deliberate intention to mislead but had done his best ‘in the context of an intractable online form’. In reaching this decision, it was crucial that Mr Tooth had provided a detailed explanation in the white space on the return.

The takeaway message here being the importance of full disclosure to HMRC.

The Aftermath

Although Mr Tooth won his case, the Court also upheld HMRC’s entitlement to raise ‘discovery assessments’ up to the normal statutory time limit, even where HMRC have delayed using available information.

‘Discovery assessments’ can be used where HMRC believe the wrong amount of tax has been assessed and the Tooth Case makes it easier for HMRC to access their extended time limits – usually 4 years after the end of the tax year, but up to 6 years in cases of ‘carelessness’ or 20 years in causes of ‘deliberate inaccuracy’.