The tax return white space is the innocuous looking ‘any other information’ space at box 19 of the main SA100 tax return. It is more important than it looks, as the case of Charlton and Others v HMRC illustrates.
In the case of Charlton and Others v HMRC the taxpayers entered into a tax avoidance scheme in 2006/07, which had been ruled invalid in a previous tax case. Comprehensive disclosure, drafted by counsel, was made in the white space box of the taxpayers’ self assessment returns.
In July 2009, HMRC issued a discovery assessment under TMA 1970, s29. The taxpayer appealed, contending that the assessment had been issued outside the statutory time limit for raising an inquiry.
The taxpayers’ appeal was allowed. The tribunal accepted that there had been a discovery assessment but on the evidence, the information provided with the taxpayers’ returns was sufficient to show that ‘no officer could have missed the point that an artificial tax avoidance scheme had been implemented’. Any officer reviewing the return should then have proceeded to seek guidance and an inquiry should have begun before the closure of the inquiry window on 31 January 2009. Discovery should not be used to make up for administrative inadequacy on the part of HMRC.
Subsequent tax cases have thrown some uncertainty over the matter; notably, that of Robert Smith v HMRC. In this case, the circumstances were fairly similar. However, in this case, the HMRC officer dealing with the case had gone on sick leave for a period which straddled the enquiry window. The decision in this case went in favour of HMRC and the First Tier Tribunal ruled that HMRC were entitled to make a discovery assessment, even though a full disclosure had been made. This decision has, however, been appealed and the case will be heard before the Upper Tax Tribunal shortly.
Although the two cases above relate specifically to tax avoidance schemes, the white space can be used to include additional information relating to any aspect of the self assessment tax return. The white space should, in particular, be used whenever there is some doubt regarding a particular aspect of the return and an element of judgement is been applied. This may apply where the legislation is not particularly clear in a certain area. Provided that the situation has been explained sufficiently in the white space notes, this will make it considerably more difficult, if not impossible, for HMRC to issue a discovery assessment once the normal enquiry window has expired.