Discovery had become stale

The taxpayer entered into a tax avoidance arrangement intended to create a tax loss without a corresponding taxable amount. It was largely the same as that considered unsuccessful by the Court of Appeal in Astall and Edwards v CRC [2010] STC 137.

HMRC failed to open an enquiry into the taxpayer’s return by the deadline of 31 January 2004. Indeed he was the only participant in the scheme into whose return the department did not enquire. After becoming aware of this in June 2004 HMRC decided to defer taking any action relating to his return until further progress had been made in the challenges against the returns of the other participants in the scheme.

In August 2005 HMRC notified KPMG the firm that marketed the scheme that it had received advice from counsel that the arrangement did not achieve its aims and that it intended to challenge...