Supreme Court's Tooth obiter dicta sets precedent on staleness

In Paul Harrison v HMRC [2023] UKUT 00038, the Upper Tribunal (UT) considered a challenge to the Supreme Court's dismissal of the principle of staleness. It found that whilst the Supreme Court in Tooth had opined as obiter dicta, there was an intention to create a binding precedent. The appeal was dismissed.

 HMRC had issued a discovery assessment in relation to underpaid Income Tax by Mr Harrison in 2007/08:

• Mr Harrison and his wife ran a partnership which had started as a forensic accounting business in the 1980s but turned into property development in 1990.
• Expecting a litigation settlement in 2006, the couple agreed to purchase a property. The settlement never occurred and instead, the couple's son and daughter-in-law purchased the property. It was resold in 2007 at a profit.£200,000 of the proceeds was to be paid to the partnership as a 'finders fee'.
• Mr Harrison believed that he and his wife had losses and expenses that could be offset against the income and so no tax would arise. He did not notify HMRC of any Chargeability to tax as part of his self-assessment.
• As part of a fraud investigation into their son, Mr Harrison told HMRC about the £200,000.
• HMRC raised a Discovery Assessment in 2015.
• Mr Harrison believed the case officer became aware of emails discussing the amount in 2012 and so the 2015 discovery was out of time.
• On appeal to the First Tier Tribunal (FTT), Mr Harrison accepted that discovery had been made but contested that it was valid due to the delay in issuing the assessment. The FTT dismissed his appeal.
• He was granted leave to appeal on the basis that the FTT may have erred in law on the issue of staleness. The permission to appeal was granted before the Supreme Court's (SC) decision in HMRC v Raymond Tooth [2021] UKSC17 (Tooth). 

The appellant argued that as the views expressed by the SC in Tooth were 'obiter dicta' (comments or observations made by the judge) and not binding. As such the UT was bound to follow the Court of Appeal's (CA) earlier decision in Tooth which had accepted the principle of staleness.

The UT noted that:

• The concept of staleness has long been contentious.
• The SC decision in Tooth acknowledged the 'wider significance' of the case and gave an in-depth analysis as to its reasoning on staleness. As such it was the intention to give general guidance on the topic and for it to be followed.
• There is a CA precedent, albeit from a criminal case, that allows obiter dicta to form a binding precedent in a modification of the usual precedent rules. In order for the modification to occur, all of the judges in the appeal have to agree with the decision, as was the case in Tooth.

Finding that the obiter dicta from the SC was binding and the concept of staleness is 'deceased'. The appeal was dismissed.

Useful guides on this topic

Discovery Assessments
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?

Tooth: Discovery basic condition not met
In HMRC v Raymond Tooth [2021] UKSC 17, the Supreme Court ruled on two important issues in relation to HMRC's powers in making Discovery Assessments. Entering the correct figures in the wrong boxes of a tax return because there is nowhere else in the return to put them and to then make a full disclosure of that fact, cannot be construed as a deliberate error and the concept of 'staleness' in respect of assessments has a very narrow application.

Discovery assessment and time limits
FREEVIEW: How far HMRC can go back?

External link

Paul Harrison v HMRC [2023] UKUT 00038