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R Smith (TC2768)
The taxpayer took part in a marketed tax avoidance scheme involving the purchase and disposal of second-hand insurance bonds – a SHIPS scheme – with the aim of creating a capital loss of £0.5m.
The taxpayer accepted that the scheme did not work, following the decision in Drummond v HMRC [2009] STC 2206. He disclosed details of the transactions in the white space of his 2000/01 tax return, which was submitted in January 2002.
HMRC were at the time considering how to challenge SHIPS schemes. The officer dealing with the taxpayer’s case was on sick leave when the TMA 1970, s 9A enquiry window closed, meaning no action was raised in time.
The department raised a discovery assessment under s 29(1)(a) in November 2006. The taxpayer appealed, saying tax officials had the information at the appropriate time to enquire into his return.
The First-tier Tribunal noted that the test in s 29(5) was whether or not a hypothetical tax officer could have been reasonably expected to have made the assessment at the correct time based on information provided in the return.
The tribunal said that an HMRC officer could not have been reasonably expected to know about the unassessed gains because the taxpayer did not mention he had participated in the SHIPS scheme.
And the relevant law relating to the scheme used by the taxpayer was so complex that it was unreasonable for the officer to be aware of an insufficiency on the basis of the information contained in the return.
The taxpayer’s appeal was dismissed.
