In Chirag Patel v HMRC[1] the First-tier Tribunal ('FTT') decided that a letter from the taxpayer's accountant constituted a late appeal against a discovery assessment, despite it not being expressed as such.

Background

HMRC understood, from information held by them, that the taxpayer may not have declared certain rental income and gains in respect of property transactions. On 13 February 2013, by a letter headed "Compliance Check" sent to the taxpayer and his representative, HMRC requested that it be supplied with copies of certain documents. 

On 25 March 2013, the taxpayer's representative wrote to HMRC and confirmed that he and the taxpayer were considering HMRC's request and he hoped to be in a position to respond within three weeks. 

On 27 March 2013, apparently without sight of the 25 March 2013 letter, and with the time limit for making an assessment for the 2006/07 year due to expire, HMRC issued a discovery assessment under section 29 Taxes Management Act 1970. HMRC's letter stated that if the taxpayer considered the assessment to be wrong in any way he or his adviser should write and say so within 30 days. 

On 16 May 2013, the taxpayer's representative wrote to HMRC attaching a revised calculation of the gain, with a lower figure than that calculated by HMRC. The letter stated that the taxpayer believed that there was further expenditure which would further reduce the gain but that he could not, at that time, locate the necessary documentation evidencing this expenditure. 

On 12 June 2013, HMRC wrote to the taxpayer's representative and referred to the possibility of the making of a late appeal, provided there was reasonable excuse and that the appeal was made as soon as possible after the excuse ended. On 19 August 2013, following some further communication by telephone in the interim, a formal appeal was submitted to HMRC on behalf of the taxpayer.

The reason given for the late appeal was that the information requested by HMRC was from many years ago and had been difficult to obtain. HMRC rejected the late appeal on the basis that there was no reasonable excuse. The taxpayer applied to the FTT for permission to submit a late appeal. 

FTT's decision

HMRC argued that there had been a delay of 114 days from 27 March 2013, when they issued their assessment and 19 August 2013, when a formal letter of appeal was sent to HMRC.  

The taxpayer submitted that the letter of 16 May 2013 from his representative to HMRC constituted both an appeal and the provision of information in support of the computation. 

The FTT rejected HMRC's argument and granted the taxpayer's application. 

The FTT was of the view that the letter of 16 May 2013 could not "otherwise be regarded" than as an appeal against the assessment, evidencing further expenditure and providing a revised calculation which showed less tax being due than was claimed by HMRC. It was therefore a late appeal and HMRC should have accepted it as such. 

Comment

Whenever possible an appeal to HMRC should be made in time, and in such terms that leave no room for argument. However, it is reassuring that in this case the FTT adopted a sensible approach and considered the substance of the relevant correspondence rather than adopting a strict formalistic approach. It is also significant that the FTT concluded that allowing the taxpayer's application was consistent with the overriding objective contained in Rule 2 of the Tribunal Rules[2] to deal fairly and justly with cases.  

In circumstances where a taxpayer is cooperating with HMRC and attempting to respond to requests for made by HMRC, any attempt by HMRC to adopt an overly formalistic approach may well be rejected by the FTT.