Discovery assessment – taxpayer appeal failed

Another taxpayer has failed to overturn a discovery assessment. The first-tier tribunal accepted HMRC’s arguments that the assessment was valid despite the taxpayer’s innocent error, as it was attributable to negligent conduct on her part.

The taxpayer had invested £150,000 in two investment bonds in 1998. Shortly afterwards she became ill and encashed the bonds to fund a new property. The gains arising on encashment were disclosed on her 2001/02 tax return. On the same return, and in respect of these bonds, the sum of £7,306 was included as ‘tax treated as paid’. In fact only the smaller bond attracted a tax credit. The other one being an overseas bond.

A discovery assessment was issued in September 2005 to recover the tax in question. The Judge had to determine whether the assessment was valid.

He considered all of the surrounding circumstances and especially:

– whether, if the taxpayer had taken ‘reasonable care’, the tax return could have been properly completed; and
– whether HMRC could have been expected to be aware that the tax credit in relation to the overseas bond had been wrongly claimed.

In the Judge’s view there was no reason for HMRC to be aware that an overseas bond was involved. And equally the taxpayer should have been aware of the nature of the bonds that had been issued to her. If unaware then the taxpayer should have taken reasonable steps to obtain such information.

The Judge determined that although the error in the return was an innocent one, it was attributable to negligent conduct on the part of the taxpayer. And therefore the discovery assessment was valid.

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The Tax Man

The Tax Man

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A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

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In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

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