Discovery Assessment appeal allowed in part despite lack of evidence

In Mark Turner v HMRC [2020] TC7982, a taxi driver's failure to declare income resulted in three years of tax 'Discovery' Assessments. The First Tier Tribunal was sympathetic in respect of his expenses as had sought assistance from HMRC's Need Extra Support (NES) team.

Where HMRC find that there has been a loss of tax as a result of incomplete or inaccurate tax returns they may be able to make a  to collect the tax underpaid.

• Mr Turner was a self-employed taxi driver.
• HMRC sent him notices to file tax returns and he failed to submit returns.
• HMRC received information about Mr Turner’s income from Gloucestershire County Council in December 2011 and from a corporate client in 2014.
• Despite a meeting and correspondence with HMRC, Mr Turner failed to provide information following the meeting and failed to respond to Schedule 36 Information Notices.
• HMRC wrote to Mr Turner to inform him of their intention to raise determinations. As HMRC was out of time to raise assessments in normal time limits, they use their powers under s29 TMA 1970 to raise Discovery Assessments for the years 2009/10, 2010/11 and 2011/12.
• HMRC’s Assessments were based on income figures they could confirm (the Council and contract work) and an estimate of parcel delivery income. Cash-based journeys were not included as they were too difficult to determine. Expenses were based on national trends for similar businesses (37% of turnover).
• Mr Turner approached HMRC’s Need Extra Support (NES) team in the summer of 2016 and submitted returns from 2007/08 to 2015/16.
• HMRC’s view was that the returns did not displace the Discovery Assessments raised. 
• Mr Turner was allowed to make a late appeal to the FTT.

The FTT found that:

• The income figure for contract work provided by HMRC was correct.
• HMRC’s income figure for parcel delivery should be halved based on Mr Turner’s evidence that the income was shared.
• Cash income was £10 per week based on Mr Turner’s evidence there was little cash trade in his area of operation.
• Car, van and travel expenses were the most contentious. The only evidence provided was fuel for a three-month period in 2011. Extrapolating this expense over the years in question gave an expense figure in excess of that claimed in the returns, so Mr Turner’s expense figure was allowed.
• Figures in Mr Turner’s tax returns were allowed as the FTT concluded that the NES must have been given documents to justify the expenses claimed, despite that evidence not being available to the Tribunal.

The FTT allowed the appeal in part.

Useful guides on this topic

Discovery Assessments: At a glance (freeview guide)
What is a Discovery Assessment? When can HMRC make a Discovery? What are the time limits for Discovery Assessment?

Discovery Assessments (subscriber guide)
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Schedule 36 information notices (subscriber guide)
What penalties apply if you fail to comply with an Information Notice request by HMRC? What are your rights of appeal?

Schedule 36 information notices: at a glance (freeview guide)
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

How to appeal a tax penalty (freeview guide)
How to appeal a tax penalty. What are your rights of appeal if HM Revenue & Customs (HMRC) have assessed you for a tax penalty?

How to appeal a tax penalty (subscriber guide)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

External links

Mark Turner v HMRC [2021] TC7982