After the usual time limits for enquiry into a tax return have passed, HMRC can issue a "discovery assessment" where new facts or information come to light showing a previous assessment to tax was insufficient or inaccurate.

In order to make a discovery assessment, HMRC must show that either (i) the insufficiency of tax is brought about carelessly or deliberately by the taxpayer (or his or her tax advisor) or (ii) the investigating HMRC officer could not reasonably have been expected to be aware of an insufficiency of tax based on the information available to them.

In the first case, Mr. Hicks had participated in a tax avoidance scheme which purported to give him significant tax losses to offset against taxable income. The scheme had been disclosed to HMRC by its promoter under DOTAS. The relevant tax returns (08/09 and 09/10) included the DOTAS scheme reference number.

In 2015, HMRC issued discovery assessments in respect of the relevant tax returns. The FTT reiterated previous case law in confirming that neither Mr. Hicks nor his tax advisor had acted carelessly or deliberately in respect of either return. The FTT's view is particularly interesting given the DOTAS issue on these particular facts as it shows that it is not necessarily careless to enter into a potential tax avoidance scheme even in the knowledge that HMRC may challenge it. 

HMRC v Raymond Tooth similarly involved a controversial tax planning scheme but here the scheme had not yet been given a DOTAS reference number. The taxpayer instead made a "white space" disclosure of his involvement in the controversial scheme in his tax return, stating that the interpretation of the law that he had adopted in determining his tax bill for the relevant period was controversial and that he expected an enquiry to be raised.

No proper enquiry was raised in the ordinary enquiry period and when HMRC sought to raise a discovery assessment it was rejected. The return had become wrong, because the taxpayer's controversial reading of the law had subsequently been determined as incorrect, but it was not wrong at the time of submission and he had brought the controversy to the notice of HMRC. It was also held that in any event there would have been no proper discovery of new facts or information and hence a discovery assessment was inappropriate.