In Julian Lowe v HMRC [2024] TC9285, four years of Discovery Assessments for allegedly overclaimed travel and subsistence expenses were invalid. HMRC was unable to provide any evidence to substantiate its officer's decision to make a discovery.
HMRC had raised Discovery Assessments on the appellant in respect of the tax years 2017/2018, 2018/2019, 2019/2020, and 2020/2021.
- The taxpayer was an employee in the water industry. His job required extensive Travel and he incurred substantial business mileage and other business costs for Subsistence expenses on dining and hotels.
- His employer reimbursed the claimed expenses, but he was concerned that he was not claiming all he could.
- He appointed a tax agent, Apostle, who prepared his tax return based on his expense claims.
- Apostle completed the expense sheets that he had sent to his employer. He had instructed Apostle to compile his tax returns for the relevant tax years. Apostle would do this and would also tell him whether or not there were expenses which were not tax deductible.
Enquiry
- HMRC wrote to the appellant opening an enquiry into his tax returns. HMRC suspected that the appellant had claimed deductible expenses to which he was not entitled.
- On a call to HMRC, it became clear that some of the expenses related to a self-employed consulting business that the taxpayer thought he was setting up.
- HMRC decided that the agent had made carelessly inaccurate claims for deductible expenses and was not checking receipts and raised assessments.
The taxpayer appealed HMRC's decision.
The First Tier Tribunal (FTT) found that:
- It is not clear whether HMRC's assessing officer was also the officer who made the discovery.
- HMRC had tendered a witness statement to its assessing officer which includes a statement of truth, but the assessing officer did not attend the hearing and gave, therefore, no oral evidence.
- The discovery appeared to have been made based on what was discussed on a telephone call between HMRC and the taxpayer.
It is for HMRC to demonstrate that on the balance of probabilities, a valid discovery has been made.
- In the absence of any such oral evidence, the FTT was not prepared to accept that the assessing officer’s witness statement is any evidence that a discovery was made.
- HMRC produced no other evidence.
The FTT decided that the conditions for a valid discovery had not been met and the appeal was allowed.
Useful guides on this topic
Travel
How do employers apply the tax rules to travel costs? What is available for subsistence costs? What are the rules on home-to-work travel?
Subsistence
Subsistence is the tax term for food and drink. What can be claimed? What are the rules for employer intermediaries? How do claims affect VAT, National Insurance Contributions (NICs) and Income Tax?
Scale rates, bespoke rates and fixed-rate expenses
What expense allowances can be paid to employees? What are HMRC's scale rates and bespoke scale rates?
Discovery Assessments
What is a Discovery Assessment? When can HMRC make a Discovery? What are the time limits for the Discovery Assessment?
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