I am always on the look out for cases which involve discovery assessments because the opportunity for HMRC to raise assessments out of time is obviously very important indeed. It will be remembered that the decision in Langham v Veltema gave HMRC pretty much unrestricted power to raise assessments without regard to the enquiry window. However the principles in that case have gradually been eroded in recent years to allow the taxpayer a reasonable degree of protection from discovery assessments out of time which was indeed one of the cornerstones of the self assessment system.  

The recent case of Admirals Locums v HMRC TC1416 was concerned with a loss relief claim made by a doctor who had been suspended from the GMC with the effect that he was unable to work as a doctor for a considerable period. He claimed for a loss in the trade during the period that he was trying to have his registration as a medical practitioner restored but he was not carrying on any trade during the period of his suspension and could not therefore have incurred a trading loss during those periods. For several years after he had ceased work he continued to claim loss relief in the trade and had disclosed his circumstances to HMRC. Although HMRC had not disallowed his claims in the past, that did not mean they were precluded from doing so once they realised their error.  

However, having done so, they wanted to go back beyond the enquiry window on the basis of discovery but their application was denied by the Tribunal on the grounds that there had not been anything “newly arising” or “newly appeared” to them. The Tribunal observed that the main fact relied on by HMRC is that the taxpayer had no trade in the years in question. However this is something that the taxpayer had made clear in the information provided to HMRC. Therefore there was no discovery because the relevant officer could have been reasonably expected on the basis of the information made available to him at the relevant time to be aware of this situation. It followed that there was no fraud or negligence on behalf of the Appellant allowing any further opportunity for discovery.  

Whilst there was little or no merit in the taxpayers claim (he was not carrying on a trade, he was not entitled to loss relief and had relied too heavily on the fact that HMRC had not challenged him before) the fact remains that HMRC should have taken action within the specified time limit. If a taxpayer had failed to act in that way HMRC would have no sympathy so it is difficult to suggest that the rules should not apply equally to them.