Legislation extending time limits for assessing unpaid offshore tax did not prevent the requirement to correct rules from applying to determine the time limit for making a discovery assessment

In James Scott v HMRC [2023] UKFTT 00360 (TC), the First-tier Tribunal (FTT) held that legislation extending time limits for assessing unpaid offshore tax did not prevent the requirement to correct rules from applying to determine the time limit for HMRC to make a discovery assessment.

Background

Mr James Scott was the beneficiary of loans from a trust. From 2013-14 onwards, no interest was payable on the loans and this gave rise to a taxable benefit charge under the chargeable gains legislation. This tax was, mistakenly, not included on Mr Scott’s tax returns. 

In December 2018, Mr Scott made a voluntary disclosure, under the worldwide disclosure facility, in respect of tax payable in relation to tax years 2014-15 to 2016-17. This resulted in HMRC opening an enquiry into Mr Scott's tax affairs. 

At the closure of HMRC's enquiry, it transpired that tax was also due in respect of the 2013-14 tax year. In March 2021, HMRC issued discovery assessments to Mr Scott in respect of tax years 2013-14 to 2016-17, inclusive (the Assessments). 

Mr Scott appealed the Assessments to the FTT.

FTT decision

The appeals were dismissed. 

The key issue for the FTT to consider was whether the ‘offshore’ rules  included in section 36A,  Taxes Management Act 1970 (the Offshore Rules), which were introduced by section 80 , Finance Act 2019, impliedly repealed and replaced the earlier ‘requirement to correct’ rules, which were introduced in paragraph 26, Schedule 18, Finance (No 2) Act 2017 (the RTC Rules). 

Under the standard time limits, HMRC had four years from the end of the relevant tax year to raise an assessment (i.e. by 5 April 2018 and 5 April 2019, respectively). The RTC Rules would effectively extend these time limits to 4 April 2021, which would mean that HMRC would be in time if those rules applied. 

Mr Scott argued that the extended deadline under the RTC Rules was effectively superseded when the new time limits were introduced by the Offshore Rules. The extended offshore 12 year time limit would in principle apply but, for the tax years in dispute, only if the loss of tax had been brought about carelessly by Mr Scott. As it was accepted by HMRC that Mr Scott had not acted carelessly, Mr Scott argued that the Offshore Rules did not apply. Instead, the standard four year time limit applied, and HMRC was out of time. Accordingly, the Assessments were invalid.   

The FTT disagreed with Mr Scott. In its view, the application of the RTC Rules and the Offshore Rules was as follows: (i) under the RTC Rules, HMRC could raise an assessment until 4 April 2021, in respect of the 2013/14 and 2014/15 assessments (which HMRC had done); and (ii) under the Offshore Rules, HMRC could only raise an assessment where the loss of tax was brought about carelessly by Mr Scott, which was not the case.  

Comment 

This decision confirms that the Offshore Rules do not prevent the RTC Rules from applying to determine the time limit for HMRC to make a discovery assessment. The FTT concluded that there was no inconsistency between the two rules that could give rise to the need to consider implied repeal. The RTC provisions were a specific time-limited set of provisions which had a reduced effect over time, whereas the 12 year extended time limit was an ongoing set of provisions.

The decision can be viewed here.