HMRC out of time to assess: Outram v HMRC [06.02.26]

This case review was co-authored by Charlie Middleton, Trainee Solicitor.

The Tax Tribunal has found that discovery assessments issued almost nine years after the relevant tax year were out of time. HMRC failed to establish that the taxpayers’ conduct had been deliberate and it was therefore not able to avail itself of the 20-year extended time limit under section 36(1A)(a) of the Taxes Management Act 1970.

Facts

The Taxpayers in Outram v HMRC [06.02.26] participated in a tax avoidance scheme marketed by those in the Montpelier group involving purported CFD trades linked to the FTSE 100. The structure was designed to generate artificial losses capable of being offset against income. In the 2005 and 2006 tax years, the Taxpayers claimed losses of approximately £216,000 and £506,000 respectively. HMRC issued discovery assessments in 2015, relying on the 20-year extended time limit for deliberate conduct.

Legal Issue

The Taxpayers conceded that the scheme did not work. The sole question for the Tribunal was whether the taxpayers had “deliberately brought about a loss of tax” within the meaning of section 36(1A)(a). 

The Tribunal emphasised that HMRC must establish actual knowledge of inaccuracy or blind-eye knowledge (HMRC did not advance a case of recklessness). Although the scheme was artificial, the decisive question was the taxpayers’ subjective belief at the time the returns were filed. 

In HMRC v Tooth [2021], the Supreme Court held that “deliberate” requires more than a statement that is intentionally made but later shown to be wrong. It requires an intention to mislead HMRC: the taxpayer must know that the statement is inaccurate and proceed regardless. “Blind-eye knowledge” may also amount to deliberate conduct. In CPR Commercials Ltd v HMRC [2023], the Upper Tribunal described blind-eye knowledge as being where “a taxpayer suspects that a document contained an inaccuracy but deliberately and without good reason chooses not to confirm the true position”

Tribunal’s Decision

The Tribunal considered a number of submissions by HMRC as to what the taxpayers must have believed. The Tribunal accepted that the scheme lacked commercial substance and was designed to generate tax losses. However, that objective artificiality did not establish that the taxpayers appreciated that their claims were incorrect. This distinction between the objective design of the scheme and taxpayers’ subjective belief was central to the outcome. 

The taxpayers relied on representations from Montpelier that the scheme had received a positive opinion from counsel, and their returns were prepared by professional accountants. The Tribunal considered that this reliance, considered in its context, showed that the taxpayers believed the arrangements were effective and that the claimed tax treatment was correct. 

HMRC failed to prove deliberate conduct. The 20-year time limit did not apply, and the discovery assessments were out of time.

Comment

Tax litigators may be more familiar with taxpayers relying upon advice to establish that they had not been careless. Here, the taxpayers’ reliance on advice was an important factor in establishing that they had not acted deliberately. The quality of the advice required appears to be different: the Tribunal commented that the taxpayers’ reliance on the advice (in the face of disclaimers that Montpelier was not recommending the scheme and that the taxpayers should seek independent legal advice) may have been incautious and the disclaimers “temper[ed] the reasonableness of th[e] reliance”. That is, the advice may not have been sufficient to establish reasonable care (had careless behaviour been in issue), but it was enough, in the context of all the circumstances, to disprove deliberate behaviour.  

Finally, the suggestion in Tooth that recklessness might (perhaps) satisfy the deliberate threshold remains open. As in other recent appeals (for example, Kog v HMRC [2026]), HMRC did not advance that case here. However, the Tribunal’s comment that, to establish deliberate conduct, even very careless behaviour is not sufficient, suggests that there may only be a narrow set of facts whereby HMRC can establish reckless behaviour sufficient to satisfy 36(1A)(a) where the conduct falls short of actual or blind-eye knowledge.