Appeals, disputes and investigations
HMRC’s appeal dismissed in discovery case on time limits
The Upper Tribunal (UT) has upheld the First-tier Tribunal’s (FTT) finding that HMRC’s assessments were invalid, as not all of the behaviour was deliberate. Each part of the assessment must meet the correct behavioural threshold for the relevant time limit.
The self-employed taxpayer had been issued with discovery assessments covering six tax years relating to his business between 2009/10 and 2015/16.
At the FTT, it was found that only one element of his conduct (not declaring money received) was deliberate, whereas elements like overclaiming capital allowances and expenses were careless. This meant that assessments were out of time.
At the UT, HMRC pursued its case that the entire assessment for each year should be valid as there had been deliberate behaviour. It argued that the assessment can also include the non-deliberate errors identified in those years which would otherwise be out of time under the standard non-deliberate time limits. The UT however found for the taxpayer, noting that each part of the assessment must meet the correct behavioural threshold for the relevant time limit.
From Tax Update March 2026, published by S&W Partners LLP
Appeal allowed on extended time limit for carry-back losses
The taxpayer successfully argued that he was in time to amend carry forward claims to carry-back claims, and that HMRC had made an appealable decision.
The taxpayer made losses in two non-consecutive years, and argued that he should be able to carry back each against profits of the previous year. In each case he had included the losses on his current year return. HMRC argued that this constituted a claim for the losses to be carried forward. The taxpayer argued that if so, he could undo them, and that in any case, the extended time limit for making a carry back claim applied. He also argued that correspondence from HMRC gave him a right of appeal.
The First-tier Tribunal (FTT) found that he had initially made carry forward claims, but that this did not prevent him later claiming to carry the unused losses back. It found that a letter he had sent was sufficient to make the carry back claims, and that they were in time. The extended time limit applied because of a later amendment creating unrelieved profits in the earlier year.
In addition, correspondence from HMRC was valid notice of HMRC’s intention to enquire, and a later letter a valid closure notice, so the taxpayer did have a right of appeal.
The FTT found overall for the taxpayer.
From Tax Update March 2026, published by S&W Partners LLP
Discovery assessments upheld on taxpayer who used repayment agent
The taxpayer was paid through pay as you earn (PAYE), and wanted to claim employment expenses in excess of what could be included in his PAYE code. He signed up with an online agent who was due to arrange the tax refund for him. He initially received a refund, a large percentage of which was kept by the agent, but HMRC disallowed his claims on enquiry, due to lack of evidence that they met the criteria for allowable employment expenses, rather than just commuting.
At appeal, the taxpayer stated that he had explained the expenses to the agent, who had not said that they might not be claimable. He never saw the tax returns before submission. He stated that the agent had advised him to inflate the claims to get a larger tax refund, and that he had done so as he was not aware that this was not in line with UK tax regulations.
Given his admission that the claims were inflated, the FTT disallowed his appeal against the discovery assessments. It criticised the agent, but found that there was a legitimate discovery, and that a reasonable taxpayer would not have wholly relied on the agent’s advice.
From Tax Update February 2026, published by S&W Partners LLP
Extended time limit did not apply
This case was remitted from the Upper Tribunal (UT) to the First-tier Tribunal (FTT) for a determination on taxpayer behaviour. If the taxpayers had made a deliberate inaccuracy, then the extended time limit for investigation would have applied.
The taxpayers had taken part in a Montpelier scheme which was intended to create trading losses from contracts for difference.
The FTT considered that the taxpayers had relied on professional advice that was appropriately sought, and there was no evidence of any knowledge at the time that these arrangements were deliberate tax avoidance. It therefore found that HMRC did not discharge its burden of proof that the taxpayers made deliberate inaccuracies.
From Tax Update February 2026, published by S&W Partners LLP
Practical Points
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