HMRC have the power to raise ‘discovery’ assessments if they find that someone has not paid enough tax. Broadly, HMRC have four years from the end of the relevant period to raise an assessment. If the mistake was made carelessly, HMRC can go back six years, and if it was deliberate, up to 20 years.
Harte
The case of HMRC v Harte [2026] UKUT 112 (TCC) considered what happens when there are a number of errors in the same period. In Mr Harte’s case, HMRC found a mix of issues: some income he hadn’t declared, some expenses that were claimed incorrectly, and some spending on a company credit card that shouldn’t have been included. These issues had different reasons for being incorrect. HMRC put all issues together in one assessment and argued that because at least one of the mistakes was deliberate, they could use the longest time limit for all of them.
Mr Harte disagreed, saying that each error should be looked at separately and the relevant time-limit applied individually.
Ruling
The Upper Tribunal (UT) agreed with Mr Harte and upheld the decision of the First-tier Tribunal (FTT). HMRC can’t just use a ’blanket’ approach. Instead, for each separate error or shortfall in tax, HMRC must show whether it was careless, deliberate or a genuine mistake. The time-limits follow this. So, if one error was deliberate, HMRC can go back 20 years for that, but if another was a careless error, they can only go back six years for that part.
Implications for HMRC’s Approach
The UT’s decision has far-reaching implications for how HMRC should handle discovery assessments in the future:
- Granular Analysis Required: HMRC should now analyse each tax issue separately when raising a discovery assessment. They cannot simply aggregate all issues and apply the strictest rules across the board;
- Fairer Outcomes for Taxpayers: Taxpayers are protected from being penalised for genuine mistakes made despite reasonable care, or for issues that are out of time. Only those elements that meet the necessary criteria can be included in an assessment for earlier years;
- Greater Burden on HMRC: HMRC should be more precise in their investigations and assessments of relevant behaviours, ensuring that each issue is properly justified and supported by evidence; and
- Strategic Considerations: Both HMRC and taxpayers will need to keep detailed records and be prepared to argue the facts and circumstances of each issue, rather than relying on broad arguments.
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