Discovery assessments after the Tooth case

Q: What should taxpayers and advisers take from it?

Explain departures from the form. A clear white space note helps both against a deliberate allegation and under the hypothetical officer test. Do not rely on delay. HMRC taking years to assess after a discovery is no longer a defence in itself; the statutory time limits are what count. Test the behaviour allegation. HMRC must prove deliberate behaviour where it relies on the 20 year limit. Ask what evidence shows an intention to mislead. See burden of proof in tax appeals. Check whether a return was filed. In Jafari HMRC accepted that whether section 29(4) or (5) is relevant depends on whether a return was delivered, not on whether chargeability was notified. Distinguish careless from deliberate. A finding of carelessness still allows a discovery assessment within 6 years under section 36(1), and EM3259 says HMRC need only allege the behaviour level needed for the time limit it uses. For the wider framework, see our guides to the HMRC discovery assessment and to the difference between an enquiry and a discovery assessment. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

In HMRC v Tooth [2021] UKSC 17 the Supreme Court settled three points about discovery assessments. A deliberate inaccuracy in a return means a statement the taxpayer knew to be inaccurate and intended to mislead HMRC with (or perhaps was reckless about), not just a deliberate entry that turns out to be wrong. A valid discovery does not go stale with the passage of time. And each officer makes their own discovery: HMRC has no collective knowledge.

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What was the Tooth case about?

Mr Tooth’s advisers prepared his 2007 to 2008 return, which included an employment related loss of the following year carried back against his income. The facts are set out in the Upper Tribunal’s decision, HMRC v Tooth [2018] UKUT 0038 (TCC). The box on the return intended for that claim could not be accessed because of a technical problem with the filing software, so on the software provider’s advice the loss was entered on the partnership pages, with an explanation in the “any other information” box saying what had been done and why.

HMRC opened an enquiry into the loss claim in 2010 under Schedule 1A of the Taxes Management Act 1970 (TMA 1970). It was later accepted that this was the wrong procedure and that HMRC was out of time to enquire under section 9A. On 24 October 2014 HMRC instead made a discovery assessment under section 29 for £475,498.20, arguing that Mr Tooth had acted deliberately by using the wrong box. The allegation was critical because only a deliberate loss of tax could support an assessment so many years later, under the 20 year limit in section 36(1A).

The First tier Tribunal held that the loss of tax was not brought about deliberately and allowed Mr Tooth’s appeal. The Upper Tribunal dismissed HMRC’s appeal. The Supreme Court gave judgment on 14 May 2021, delivered by Lord Briggs and Lord Sales with whom the rest of the Court agreed.

What does “deliberate inaccuracy” mean after Tooth?

Section 118(7) TMA 1970 says a loss of tax brought about deliberately includes one arising from a deliberate inaccuracy in a document given to HMRC. The Supreme Court asked whether this meant (i) a deliberate statement which is in fact inaccurate, or (ii) a statement which, when made, was deliberately inaccurate. It chose the second. At paragraph 47 it said there must be “an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or, perhaps, … recklessness as to whether it would do so.”

The practical effect is that choosing to put a figure somewhere, knowing exactly what you are doing, is not deliberate behaviour if you are not trying to mislead HMRC about its truth. An open, explained departure from the form is the opposite of an intention to mislead. The Upper Tribunal in Danapal v HMRC [2023] UKUT 00086 (TCC) noted the Supreme Court’s observation at paragraph 83 that deliberate behaviour in this context describes conduct that amounts to fraud or is akin to fraud, and that HMRC carries the burden of proving it.

HMRC’s guidance now reflects this. EM3220 says deliberate behaviour includes a deliberate inaccuracy in a document where there is a deliberate intention to mislead HMRC, and CH53700 says a person will be treated as deliberately causing a loss of tax if they consciously intended to mislead HMRC.

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Can a discovery go stale?

Before Tooth, some tribunals followed the Upper Tribunal in Charlton v HMRC [2012] UKUT 770 (TCC) in holding that a discovery could lose its force if HMRC sat on it too long before assessing. The Upper Tribunal in Tooth itself said HMRC could not discover an insufficiency and then park the question of assessing. The Supreme Court disagreed. At paragraph 76, quoted in EM3260, it said there is “no place for the idea that a discovery which qualifies as such should cease to do so by the passage of time”, because the statute sets positive time limits within which an assessment “may be made at any time”.

The effect was immediate. In HMRC v Jafari [2022] UKUT 00119 (TCC) and HMRC v Martino [2022] UKUT 00128 (TCC), HMRC’s appeals against decisions based on staleness succeeded. In Hargreaves v HMRC [2022] UKUT 00034 (TCC) both parties agreed HMRC’s appeal on staleness had to be allowed, and in Cumming Bruce v HMRC [2022] UKUT 00233 (TCC) the taxpayer withdrew his staleness ground. EM3260 says any challenges on the grounds of staleness should now be resolved.

What counts as a discovery?

EM3231 summarises the position HMRC takes from Tooth and earlier cases:

a discovery happens when an officer newly reaches the conclusion that tax is under assessed, and no new facts are needed; a change of opinion can be enough;
it must be more than mere suspicion: the officer needs a reasonable belief;
it is made by an individual officer, not by “HMRC” or a team;
there is no collective knowledge within HMRC, so one officer’s knowledge is not imputed to another, and a second officer can make the same discovery for themselves.

The paragraph 78 passage quoted in EM3260 puts the question as whether the officer deciding to assess has subjectively made a discovery of an under assessment. EM3251 accepts that in any appeal HMRC must show that the discovery was made, which is why the explanation letter should say what was discovered and when.

Has Tooth affected penalties too?

Yes. Tooth concerned discovery assessments, but the Supreme Court noted the similar treatment of careless and deliberate conduct in the inaccuracy penalty rules in Schedule 24 to the Finance Act 2007. The Upper Tribunal in CF Booth Ltd v HMRC [2022] UKUT 00217 (TCC) held that Tooth was consistent with the established penalty test that a deliberate inaccuracy occurs when a taxpayer knowingly provides a document containing an error intending HMRC to rely on it. CPR Commercials Ltd v HMRC [2023] UKUT 00061 (TCC) and Campbell v HMRC [2023] UKUT 00265 (TCC) applied the same approach; in Campbell the Upper Tribunal said that being careless, mistaken or stupid is not enough to show deliberate behaviour.

A worked example

Illustration only. In 2026 HMRC reviews a 2016 to 2017 return in which a director claimed a relief using a box that did not quite fit, with a full white space explanation. The normal 4 year limit and the 6 year careless limit have both passed, so HMRC can only assess if it shows the loss of tax was deliberate. After Tooth, it must show the director intended to mislead HMRC about the truth of the entry, or perhaps was reckless about that. The open explanation makes that very hard. If instead the director had hidden the claim inside another figure knowing it was not allowable, the 20 year limit could apply. Delay by HMRC since a discovery made in, say, 2024 would not on its own invalidate the assessment.

What should taxpayers and advisers take from it?

Explain departures from the form. A clear white space note helps both against a deliberate allegation and under the hypothetical officer test.
Do not rely on delay. HMRC taking years to assess after a discovery is no longer a defence in itself; the statutory time limits are what count.
Test the behaviour allegation. HMRC must prove deliberate behaviour where it relies on the 20 year limit. Ask what evidence shows an intention to mislead. See burden of proof in tax appeals.
Check whether a return was filed. In Jafari HMRC accepted that whether section 29(4) or (5) is relevant depends on whether a return was delivered, not on whether chargeability was notified.
Distinguish careless from deliberate. A finding of carelessness still allows a discovery assessment within 6 years under section 36(1), and EM3259 says HMRC need only allege the behaviour level needed for the time limit it uses.

For the wider framework, see our guides to the HMRC discovery assessment and to the difference between an enquiry and a discovery assessment.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.