Justified discovery

The taxpayer submitted his 2003/04 tax return and claimed capital losses of about £2.6m.

HMRC examined the return in October 2006 and concluded the taxpayer had taken part in an avoidance scheme involving second-hand insurance policies.

The department issued a notice under TMA 1970 s 20(1) with which the taxpayer did not comply. He sought a judicial review to have the notice set aside.

The Court of Session dismissed the taxpayer’s application in May 2009 around the time the Court of Appeal in J Drummond v CRC [2009] STC 2206 ruled that a similar avoidance scheme did not work.

The situation satisfied Revenue that the taxpayer’s return was incorrect. The taxman raised a £835 400 discovery assessment and the taxpayer appealed.

The taxpayer first argued there had been no discovery under s 29(1). The First-tier Tribunal disagreed saying the critical decision was the Court of...