Langham v Veltema [2004] EWCA Civ 193

The authority on the taxpayer’s principal defence to a discovery assessment. Veltema holds that s29(5) TMA 1970 shuts HMRC out only where the taxpayer has clearly alerted the officer to the insufficiency, not where the disclosure merely prompts enquiry. Since Tooth killed the staleness argument, this is the protection that actually remains.

Why Veltema Matters More Now Than It Did

Between 2013 and 2021 the fashionable challenge to a delayed discovery assessment was staleness. The Supreme Court in HMRC v Tooth [2021] UKSC 17 removed that argument, holding that a discovery does not decay through the passage of time and expressly disapproving the relevant passage in Charlton. When the Court identified what protections a taxpayer actually retains against a long-delayed assessment, s29(5) was at the top of the list.

That makes Veltema the operative authority. It is the case that defines both what HMRC is deemed to know and how clearly the taxpayer must speak in order to shut the discovery window. Post-Tooth, it is the argument.

The Facts

Mr Veltema was a director of a company. The company transferred a house to him at no cost, so that the transfer gave rise to a taxable benefit in his hands and a chargeable gain in the company’s.

The company obtained a professional valuation of the property from a firm of chartered surveyors and valuers, which put the open market value at £100,000. Mr Veltema used that figure in his own self-assessment return to calculate the assessable benefit. The company used the same figure in its chargeable gains computation.

The Inspector dealing with the company’s affairs referred the valuation to the District Valuer, who took the view that £100,000 was too low. A value of £145,000 was eventually agreed. By the time that happened, the enquiry window under s9A TMA 1970 on Mr Veltema’s personal return had closed.

The Revenue raised a discovery assessment under s29 TMA 1970 on the additional benefit. Mr Veltema resisted it on the basis of s29(5): the Inspector, he said, could reasonably have been expected to be aware of the insufficiency on the information made available before the window closed.

The Statutory Framework

Section 29(5) TMA 1970 provides that a discovery assessment may not be made where, at the time the enquiry window closed (or the enquiry was completed), an officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the insufficiency.

Section 29(6) then defines exhaustively what information is “made available”. In outline it is:

• information contained in the taxpayer’s return for the year, or in any accompanying accounts, statements or documents;
• information contained in a claim made for that year, and any accompanying material;
• information produced or furnished in connection with an enquiry into that return or claim; and
• information whose relevance to the insufficiency could reasonably be expected to be inferred by an officer from any of the above, or which was notified in writing by or on behalf of the taxpayer.

Two consequences follow from the structure. First, the pool is limited to what the taxpayer supplied, not what HMRC held from other sources or could have obtained by asking. Second, the test is objective: it asks what a hypothetical officer of ordinary competence could reasonably have been expected to be aware of, not what the actual officer in fact noticed.

The Issue

The single question was whether, on or before the date the enquiry window closed, the Inspector could reasonably have been expected, on the basis of the information made available, to be aware that Mr Veltema’s self-assessment was insufficient.

The taxpayer’s argument was attractive on its face: a valuation is inherently an estimate, the return disclosed that a valuation figure had been used, and any competent officer reading a return containing a property valuation knows that valuations are frequently challenged. On that view the Inspector was on notice and should have opened an enquiry.

The Ratio Decidendi

Auld LJ’s reasoning

Auld LJ held that the statutory words require the officer to be reasonably expected to be aware of the insufficiency, not of circumstances which might on investigation reveal one. The distinction is between:

• Information that alerts the officer to the insufficiency itself. This engages s29(5), and bars the assessment.
• Information that merely puts the officer on enquiry. This does not.

On the facts, the return disclosed a valuation figure. It did not disclose that the figure was or might be wrong, still less by how much. Nothing in the material made available told the Inspector that Mr Veltema’s assessment was insufficient. The most it did was indicate that a valuation had been used, which is true of a great many returns and cannot of itself close the discovery window.

The confined information pool

The Court confirmed that the pool is that specified in s29(6), and no wider. Knowledge held elsewhere in the Revenue, information obtainable from third parties, and material that would have emerged had an enquiry been opened are all outside it. That principle was later reinforced by the Supreme Court in Tooth, which held that there is no doctrine of collective HMRC knowledge.

Obiter Dicta

• Auld LJ’s acknowledgment of the practical difficulty for taxpayers. His Lordship recognised that the effect of the decision is to leave a taxpayer who has made an honest return exposed to a later assessment, and observed that the remedy lies in the taxpayer making the position explicit rather than in a broader reading of s29(5). That observation was not necessary to the result but it has shaped compliance practice ever since, and is the origin of modern white space disclosure discipline.
• The characteristics of the hypothetical officer. The Court’s remarks about the level of competence and knowledge to be attributed to the notional officer were largely descriptive. They were developed into a fuller test in later authority, in particular Sanderson v HMRC [2016] EWCA Civ 19, which describes an officer of general competence, knowledge and skill who is not expected to resolve points of law or elaborate factual analysis.
• Arden LJ’s observations on the balance the section strikes between finality for the taxpayer and protection of the revenue are commentary on the policy of the provision rather than part of the decision.

The Line of Authority Since

• HMRC v Charlton [2013] STC 866 (UT). Held that the officer need not be aware of the insufficiency to the point of certainty; awareness that the assessment was insufficient in the sense of being more likely than not is enough. This is a taxpayer-friendly gloss on Veltema and remains good on that point, even though Charlton’s staleness passage was disapproved in Tooth.
• Sanderson v HMRC [2016] EWCA Civ 19. The Court of Appeal described the hypothetical officer and confirmed that the taxpayer must have provided information that justifies the conclusion of an actual insufficiency, not merely material that would prompt further questions.
• HMRC v Tooth [2021] UKSC 17. Identified s29(5) as one of the real protections available to a taxpayer facing a long-delayed assessment, and confirmed that a return must be read as a whole, which materially strengthens the value of a white space entry for s29(5) purposes as well as for the deliberate inaccuracy analysis.
• HMRC’s published position. HMRC’s Enquiry Manual reflects Veltema in requiring officers to consider whether the taxpayer clearly alerted them to the insufficiency, and its guidance on white space disclosure is a direct consequence of the decision.

Practitioner Application

Running a s29(5) argument

• Assemble the s29(6) pool precisely. Identify every document the taxpayer supplied for the relevant year: the return, computations, accounts, claims, correspondence, and anything notified in writing. Only these count. Produce them as a schedule.
• Frame the question as awareness of insufficiency, not of risk. HMRC will characterise the taxpayer’s disclosure as having merely raised a question. The task is to show that the material told a competent officer that the assessment was insufficient: ideally by quantifying it, flagging the contested treatment, or stating the alternative view.
• Use Charlton on the standard of awareness. The officer does not have to be certain; awareness that the assessment was insufficient on the balance of probabilities suffices.
• Use Tooth on reading the return as a whole. A white space entry, a covering letter or a note to the accounts is part of the information made available and must be read with the figures, not against them.
• Fix the timing. The question is what was available before the enquiry window closed or the enquiry was completed. Later disclosure, however full, does not assist.

The compliance lesson

Where s29(5) will not help

• Where nothing was disclosed. The section operates on information actually made available.
• Where HMRC knew of the issue from a third party or another taxpayer’s file. That is outside the s29(6) pool, and after Tooth there is no collective knowledge doctrine to bring it in.
• Where the disclosure was made after the relevant date.
• Note also that s29(5) is a protection against the assessment; it does not address the separate questions of whether the behaviour was careless or deliberate under s29(4), or whether the extended time limits apply.

Frequently Asked Questions