In Anthony Outram & Ross Outram v HMRC [2026] TC09784, the First Tier Tribunal (FTT) found that two taxpayers who had participated in an ineffective tax avoidance scheme had not deliberately brought about a loss of tax as they believed their tax returns were correct. This meant that the extended period for HMRC to raise a discovery assessment did not apply.
The appellants, two brothers whose appeals were joined as they were identical, had participated in a tax avoidance scheme. HMRC became aware of their involvement following a 2010 raid on the scheme provider, Montpelier Tax Planning, as part of a criminal investigation.
- They had claimed relief for self-employed trading losses arising from options trading for 2005-06.
- The losses were Set off against other income, then carried back to earlier years.
- Most of the losses came from one contract with a Seychelles company, Pendulum Investment Corporation. The other trades made were small in amount and volume.
- Under the planning, this other trading activity should have commenced first before the Pendulum contracts were entered into. It actually came after.
- The Pendulum contracts were funded by loans on non-commercial terms.
- The brothers did not take any advice before entering into the Pendulum contracts, saying they relied on Montpelier for everything and needed to check almost nothing.
- HMRC opened a COP9 enquiry on the grounds of suspected fraud arising from the submission of incorrect tax returns containing loss claims believed to be knowingly incorrect.
- HMRC gave the appellants the chance to make a Contractual disclosure, which they declined.
- HMRC issued Schedule 36 information notices, followed in February 2015 by Discovery assessments, on the grounds of Deliberate behaviour. The assessments disallowed the losses on the Pendulum contracts.
The brothers appealed to the First Tier Tribunal (FTT), which dismissed the taxpayers’ appeals against the assessments. The judge said the brothers were "less than compelling witnesses", even allowing for the fact that the events took place 16 years prior.
- The appellants were not carrying on a trade on a Commercial basis with a view to a profit, and few of the Badges of trade were present. They did not use a trading platform, which would have been the logical thing to do if they intended to make a profit. Instead, they signed a contract for tax planning services with an offshore company. The non-Pendulum contracts were simply window dressing to give the impression of trading.
- They had knowingly entered into a tax avoidance scheme, and their only aim was to create a significant loss and claim substantial repayments of tax. They had suffered no economic loss.
- A taxpayer is responsible for submitting an accurate Self Assessment (SA) return. The appellants knew when they filed their SA returns that they were not carrying on a trade that entitled them to make a claim for loss relief. In claiming non-existent losses, they had acted deliberately, so the Extended time limits for discovery applied, and the discovery assessments were validly issued under s.29(4) TMA 1970.
The taxpayers appealed to the Upper Tribunal (UT), which allowed the appeal. It emphasised that deliberateness is a subjective test requiring consideration of the taxpayer’s state of mind. As this could not be properly assessed without hearing their evidence, it was directed that the case be reheard by the FTT.
The sole issue considered by the FTT was whether each taxpayer deliberately brought about a loss of tax, such that the extended time limit for making a discovery assessment under section 36(1A)(a) TMA 1970 applied.
- The FTT referred to HMRC v Tooth [2021] UKSC 17, in which the Supreme Court held that the phrase ‘deliberate inaccuracy’ requires intentionality attached to the inaccuracy itself.
- This test is subjective: it is not enough that a reasonable taxpayer might have acted differently or that the taxpayer failed to take reasonable care.
- What matters is the taxpayer’s actual state of mind at the time the document was submitted; did they have actual knowledge or make a conscious decision to avoid confirming what is strongly suspected?
- The FTT noted that:
- Mere carelessness, even if gross, is insufficient to constitute deliberate behaviour.
- Blind-eye knowledge demands a specific and firmly grounded suspicion coupled with a deliberate decision not to investigate because of concern about what would be discovered.
The FTT found that:
- For blind-eye knowledge to exist, there had to be a causal link between conscious abstention from inquiry and the inaccuracy in the return. There was not, however, any abstention from inquiry by the brothers.
- The taxpayers believed matters had been put in place by Montpelier and verified through their accountant’s involvement.
- Any failure to probe loan mechanics or contractual detail did not stem from a desire to avoid learning an inconvenient truth, but instead from misplaced trust.
- The taxpayers believed their returns were correct based on advice from Montpelier and the involvement of their accountants. They did not know or suspect that the advice given to them or the entries made on their tax returns were inaccurate.
The appeal was allowed; the taxpayers had not deliberately brought about a loss of tax, and as a result, the extended time limits for discovery did not apply. HMRC's assessments were out of time.
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? Case law tracker.
Penalties: Error in a return or document
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?
Penalties: Deliberate Behaviour
There is no definition of 'Deliberate Behaviour' in the tax legislation. This guide considers case law to determine how the courts might view certain behaviours and whether they are deliberate or not.
Badges of Trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.
Losses (sideways): Restriction for uncommercial trades
What are the restrictions to sideways loss relief? When do they apply? What is an uncommercial trade?
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