In Easinghall Limited v HMRC [2016] UKUT 105 (TCC), the Upper Tribunal (UT) has confirmed that where an agreement has been reached with HMRC under section 54, TMA 1970, it cannot commence an enquiry or issue a discovery assessment unless they concern an issue which was not the subject of the agreement.


In June 2012, HMRC opened an enquiry into the tax return of Easinghall Limited (Easinghall) for the year 2010/11, pursuant to paragraph 24, Schedule 18, FA 1998. The enquiry was conducted by Mr Laurie (L). L concluded that Easinghall had understated its profits for the relevant period and issued a closure notice amending its return accordingly.

By the time L issued the closure notice, Easinghall had submitted its tax return for 2011/12. L considered it was likely it had understated its profits for 2011/12. L could have opened an enquiry into this return, but instead he chose to issue a discovery assessment pursuant to paragraph 41, Schedule 18, FA 1998, on the basis that Easinghall had carelessly or deliberately brought about  an underassessment of tax (paragraph 43, Schedule 18, FA 1998). He also imposed penalties in respect of both 2010/11 and 2011/12.

Easinghall appealed against the closure notice and amendment to its 2010/11 tax return, the discovery assessment in respect of 2011/12 and the imposition of penalties.

A review was conducted by another HMRC officer, Mr Musgrove (M), who determined that the 2010/11 tax return had been understated. However, he concluded that there was insufficient evidence to support the amount assessed in respect of 2011/12. The assessment and penalty for 2011/12 were therefore cancelled. Under section 49F(2), TMA 1970, the conclusions of a review are to be treated as if they were settled by agreement under section 54(1), TMA 1970.

Easinghall appealed to the First-tier Tribunal (FTT) in respect of M’s decision concerning 2010/11.

Notwithstanding the conclusion reached by M, L decided to open an enquiry into Easinghall’s 2011/12 tax return and sent a formal notice to it requiring documents and information.

Easinghall applied to the FTT for a direction that HMRC close its enquiry. That application was dismissed.

Easinghall appealed the FTT’s decision to the UT.

UT’s decision

The UT reviewed the FTT’s decision and concluded that it had erred in not considering the wording of M’s letter in the context of the relevant statutory provisions. The correct question was not why M arrived at the conclusion he did but rather what that conclusion was.

In its view, M had been very clear in his letter as to the particular matter in question, which was a restatement of HMRC’s view of the matter and his conclusions. His conclusions were that   the discovery assessment and penalty assessment in respect of 2011/12 should be cancelled. Accordingly, HMRC was bound by M’s letter and the FTT should have directed HMRC to close the enquiry into Easinghall’s 2011/12 tax return because the parties are treated as having agreed that there was no understatement of business takings by Easinghall for that year, by section 49F(2), TMA 1970.


Given that section 49F(2) provides that the conclusions of a review are to be treated as if they were settled by agreement under section 54(1), TMA 1970, it is surprising that HMRC thought they were entitled to open an enquiry into 2011/12.

Where an agreement has been arrived at under section 54(1), it is not open to HMRC to open an enquiry or issue a discovery assessment, unless they relate to an issue which was not agreed between the parties and was not therefore the subject of the section 54 agreement.

The wording of any agreement, or deemed agreement, with HMRC needs to be carefully considered. If the scope is too narrow, HMRC may be able to come back for a second bite of the cherry.

The decision is available to view here.