Marketed Tax Avoidance Schemes: Section 36 Extended Time Limits & the Deliberate Conduct Test

HMRC regularly pursues participants in marketed tax avoidance schemes many years after the relevant returns were filed. The key legal question is almost always the same: can HMRC bring the assessment within the 20-year extended window under section 36(1A)(a) of the Taxes Management Act 1970 by proving that the loss of tax was “deliberately brought about”? In Outram v HMRC [2026] UKFTT 248 (TC), the First-tier Tribunal held that HMRC had failed to prove deliberate conduct on the part of two brothers who participated in the Pendulum avoidance scheme in 2006 – with the result that assessments issued nine years after the tax year fell outside every available time limit.

Why This Matters for Practitioners

Marketed tax avoidance schemes were promoted widely from the late 1990s through to the mid-2010s. Many clients of accountants and tax advisers participated in such schemes – often on the basis of promoter assurances and references to undisclosed counsel’s opinions – and have since been targeted by HMRC. By the time HMRC issues discovery assessments in many of these cases, the ordinary four-year limitation period has long since expired. HMRC’s only route to assessment is accordingly to invoke the 20-year extended window, which requires it to prove that the loss of tax was “deliberately brought about.”

The importance of Outram [2026] is that it provides a detailed and carefully reasoned analysis of what it actually means to “deliberately bring about” a loss of tax in the specific context of a marketed scheme. The FTT’s conclusions – rooted in the Supreme Court’s test in HMRC v Tooth [2021] UKSC 17 – confirm that reliance on professional advice, including the mere assurance that such advice exists, can defeat HMRC’s case even where the scheme was ineffective and the taxpayer’s tax motivation was evident.

The Discovery Assessment Time Limit Framework

Understanding why the 20-year window is so critical requires a firm grasp of the TMA 1970 time limit structure for discovery assessments.

Standard and Extended Windows: s34 and s36 TMA 1970

• 4 years (s34 TMA 1970): The ordinary window. HMRC may make a discovery assessment within four years of the end of the relevant chargeable period for any under-assessed tax, without needing to establish any fault on the taxpayer’s part.
• 6 years (s36(1) TMA 1970): Available where the loss of tax was brought about “carelessly” by the taxpayer or their agent. Carelessness means a failure to take reasonable care: it is an objective standard and does not require any dishonest intent.
• 20 years (s36(1A)(a) TMA 1970): Available only where the loss of tax was brought about “deliberately” by the taxpayer. This is the gateway HMRC must invoke whenever it is seeking to assess income tax or capital gains tax for a year that ended more than six years ago.

What “Deliberately Brought About” Means: the Statutory Language

Section 36(1A)(a) TMA 1970 applies where “the loss of tax is attributable to a deliberate inaccuracy on the part of the taxpayer.” Section 118(7) TMA 1970 extends the concept to include deliberate suppression and deliberate failure to notify. In all cases, the requirement is the same: the taxpayer must have acted deliberately in bringing about the loss – which the Supreme Court in Tooth has held means an intentional act directed at misleading HMRC, not merely an act that happens to have that effect.

The s36(1A)(a) Deliberate Conduct Test: HMRC v Tooth [2021] UKSC 17

The leading authority on the deliberate conduct test is the Supreme Court’s decision in HMRC v Tooth [2021] UKSC 17. The central holding, delivered by Lord Briggs, is that the phrase “deliberate inaccuracy” attaches the requirement of intentionality to the inaccuracy itself, not merely to the act of making the statement.

The Tooth Test Stated

At paragraphs [42]–[43] of the judgment, Lord Briggs held:

“The question is whether it means (i) a deliberate statement which is (in fact) inaccurate or (ii) a statement which, when made, was deliberately inaccurate. If (ii) is correct, it would need to be shown that the maker of the statement knew it to be inaccurate or (perhaps) that he was reckless rather than merely careless or mistaken as to its accuracy. We have no hesitation in concluding that the second of those interpretations is to be preferred… Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely ‘inaccuracy’.”

The test is therefore not whether the taxpayer made a deliberate act that turned out to produce an inaccurate return, but whether the taxpayer intended the return to be inaccurate – that is, whether they knew it was wrong when they submitted it or were reckless as to whether it was. A genuine error, even one arising from carelessness, does not satisfy the test.

Confirmation in Auxilium and Campbell

The FTT in Auxilium Project Management v HMRC [2016] UKFTT 249 (TC) confirmed the subjective nature of the test at paragraph [63]:

“In our view, a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test.”

The Upper Tribunal in Campbell v HMRC [2023] UKUT 265 (TCC) reinforced this at paragraph [115]:

“Put simply, in order for HMRC to discharge the burden of demonstrating that an act or omission by a taxpayer was deliberate, they will need to establish to the normal civil standard that the act or omission was intentional; the fact that an act or omission may have been careless, mistaken or stupid is not enough.”

Blind-Eye Knowledge: CPR Commercials and Manifest Shipping

HMRC frequently argues, as it did in Outram, that even if the taxpayer did not have actual knowledge of the inaccuracy, they had “blind-eye knowledge” – that is, they suspected the returns were wrong and deliberately refrained from making inquiries. This argument has a legitimate legal basis but is difficult to establish in practice.

The Manifest Shipping Standard

The correct legal test for blind-eye knowledge was articulated by Lord Scott in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] UKHL 1 at paragraph [116]:

“Blind-eye knowledge requires… a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist… In order for there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts. The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe.”

The Upper Tribunal applied this standard in the tax context in CPR Commercials Ltd v HMRC [2023] UKUT 61 (TCC), confirming at paragraph [23] that blind-eye knowledge requires a suspicion that is “more than merely fanciful” and a conscious decision not to confirm in order to preserve ignorance of the true position.

Why Blind-Eye Rarely Succeeds Against Scheme Participants

The essential difficulty for HMRC in invoking blind-eye knowledge against marketed scheme participants is that it requires evidence of a specific, firmly grounded suspicion that the returns were inaccurate, coupled with a deliberate decision to avoid confirmation. In most marketed scheme cases:

• The taxpayer was told by the promoter that the scheme was backed by counsel’s opinion;
• Returns were prepared and submitted by qualified accountants;
• The taxpayer had no independent basis on which to suspect the scheme was flawed; and
• Any failure to conduct due diligence was the result of misplaced trust, not a conscious decision to avoid an inconvenient truth.

These features, taken together, cannot satisfy the Manifest Shipping standard. Carelessness in relying on advisers is not blind-eye knowledge.

Outram v HMRC [2026] UKFTT 248 (TC): The Pendulum Scheme

The FTT decision in Outram, released in February 2026, is a detailed application of the Tooth framework in a marketed scheme context. It repays careful study.

Background Facts

Anthony and Ross Outram were brothers who in March 2006 participated in arrangements marketed by Montpelier Tax Planning (Isle of Man) Limited and referred to as the “Pendulum” scheme. The scheme involved contracts described as contracts for difference (CFDs) linked to movements in the FTSE 100 index and was designed to generate trading losses for tax purposes. Each Appellant paid a small initial margin, signed loan documentation for a margin call balance (which was never in fact funded) and entered into contracts with Pendulum Investment Corporation, a Seychelles company.

Both Appellants had their returns for 2005–06 prepared by Barnes Roffe LLP. Anthony Outram claimed a trading loss of £216,273 and Ross Outram claimed £506,370. No white-space disclosure was made. HMRC became aware of the Appellants’ participation through a criminal investigation into Montpelier following a raid on Montpelier’s premises in September 2010. Discovery assessments were not issued until February 2015 – nine years after the tax year in question. The only available time limit was the 20-year window under s36(1A)(a) TMA 1970.

HMRC’s Case

HMRC’s case was that the Appellants had deliberately brought about a loss of tax by claiming trading loss relief to which they knew they were not entitled or at least suspected that to be the case and therefore had “blind-eye” knowledge. HMRC pointed to: the tax-motivated nature of the scheme; the minimal and commercially unconvincing CFD trading activity; the non-implementation of the loans; and the fact that the only-10%-success design of the Pendulum contracts made a genuine commercial motivation implausible.

The FTT’s Key Findings

After hearing oral evidence from both Appellants and from two Barnes Roffe partners, the FTT (Tribunal Judge Kim Sukul and Tribunal Member Manu Duggal) found in favour of the Appellants on every issue:

• No actual knowledge of inaccuracy: The Appellants genuinely believed, at the time of filing, that the arrangements were legitimate and that the claimed losses were allowable. That belief was reinforced by Montpelier’s assurances that the scheme was backed by senior counsel’s opinion and by Barnes Roffe’s preparation and submission of the returns without recommending disclosure.
• Tax motivation does not establish deliberateness: The Appellants candidly accepted that tax was a consideration. The FTT held at paragraph [98] that “tax motivation, even if substantial, is not of itself demonstrative of the subjective state of mind required by Tooth.”
• No blind-eye knowledge: The FTT found no evidence that either Appellant had a firmly grounded suspicion that the returns were wrong and deliberately refrained from inquiry. Any failure to probe loan mechanics more rigorously “did not stem from a desire to avoid learning an inconvenient truth, but instead from misplaced trust.” (para [109])
• Professional advice reliance negated the inference: The fact that the Appellants knew (or believed) the scheme had counsel’s approval and had accountants prepare their returns meant they had no subjective reason to suspect inaccuracy. This belief negated any finding of deliberate inaccuracy, even though reliance on Montpelier alone was “incautious.” (para [101])
• Loan and margin call beliefs were genuine: The Appellants believed the loan would be implemented by Montpelier and that they had a contractual liability under the CFD arrangements. There was no reliable evidential basis to conclude that, at the filing date, either Appellant knew no loan existed or that the margin call remained unpaid. (para [103])

Conclusion: HMRC had not discharged its burden of proving deliberate inaccuracy or blind-eye knowledge. The assessments, which could only stand if the 20-year window applied, were therefore out of time. Both appeals were allowed.

Professional Advice Reliance as a Complete Answer

One of the most practically significant aspects of Outram is the weight the FTT gave to professional advice reliance, even where the advice was not provided in writing and was not independently verified.

What “Professional Advice Reliance” Requires

The Outram decision does not hold that any reference to professional advice will defeat a deliberate conduct argument. The question is whether the reliance was genuine – whether the taxpayer actually believed the adviser’s assurances at the time of filing. The FTT’s findings were grounded in the following:

• The Appellants attended meetings with Montpelier representatives and were told the arrangements were backed by senior counsel;
• They engaged Barnes Roffe LLP, a firm of chartered accountants, to prepare their returns;
• Barnes Roffe did not recommend white-space disclosure and did not flag concerns about the scheme’s validity at the time;
• The Appellants had no independent basis on which to doubt the promoter’s assurances or their accountants’ approach.

Montpelier’s Disclaimers

HMRC drew attention to disclaimers in Montpelier’s marketing literature indicating that Montpelier was not recommending the investment and advising recipients to obtain independent advice. The FTT accepted that these disclaimers “temper the reasonableness of that reliance” but held that they did not establish that either Appellant knew an entry was wrong or suspected falsity and deliberately avoided confirmation (para [102]). The reasonableness of the reliance goes to negligence; the subjective test under Tooth requires knowledge or conscious indifference.

The Distinction Between Careless and Deliberate

The FTT in Outram drew careful attention to the distinction between carelessness – which might have supported a six-year assessment under s36(1) – and deliberateness. A taxpayer who fails to conduct adequate due diligence on a marketed scheme may well be careless; but carelessness is objectively assessed and does not require any intent to mislead. The six-year window for careless conduct had long expired by the time HMRC issued its assessments. The only question before the Tribunal was deliberateness and on that question the Appellants prevailed.

HMRC’s Burden of Proof

The burden of proof in time limit disputes under s36 TMA 1970 falls on HMRC. The standard is the civil standard – the balance of probabilities – but the inherently serious nature of an allegation of deliberate conduct means that cogent evidence is required before a tribunal will be satisfied. The Upper Tribunal in Campbell [2023] UKUT 265 was explicit at paragraph [115] that HMRC must establish intentionality; it is not enough to demonstrate that the taxpayer acted carelessly or made an error, however large.

In practice, HMRC’s case on deliberateness in scheme cases typically relies on:

• Objective features of the scheme suggesting the taxpayer must have known it was artificial;
• The taxpayer’s tax motivation and correspondence evidencing awareness of tax advantages;
• The absence of genuine commercial activity supporting the loss claim;
• Failures of due diligence that HMRC characterises as deliberate avoidance of confirmation.

The Outram FTT held that none of these were sufficient: objective features of artificiality do not answer the subjective question of what the individual taxpayer believed; tax motivation is not deliberateness; the absence of commercial activity demonstrates the scheme was ineffective, not that the taxpayer intended to mislead; and failures of due diligence are careless, not deliberate.

Practical Strategy for Advisers

Identify the Time Limit Challenge at the Outset

In every marketed scheme case where assessments are issued more than four years after the tax year, the adviser should immediately examine the limitation position. If the assessments are more than six years old, deliberateness is the only gateway available to HMRC. The Outram analysis should be applied to assess whether HMRC can realistically discharge that burden.

Gather Evidence of Professional Advice Reliance

The evidence base for the professional advice reliance argument is critical. Advisers should seek to locate and preserve:

• Any correspondence from the scheme promoter, including references to counsel’s opinion or professional approval;
• Engagement letters and fee notes from the accountant who prepared the returns;
• Notes of meetings at which the scheme was explained and its legitimacy confirmed;
• Evidence that the taxpayer asked questions and received reassurances.

Challenge HMRC’s Characterisation of Tax Motivation

HMRC frequently presents a taxpayer’s tax motivation as if it were evidence of deliberateness. The Outram FTT, consistent with the Tooth framework, rejected this. Tax motivation is a feature of most tax planning; its presence does not establish that the taxpayer knew the planning was ineffective. The adviser should ensure that any statement of case or skeleton argument makes this distinction explicit.

Oral Evidence Matters

The Outram FTT placed significant weight on the tested oral evidence of both Appellants. The UT had previously held that the deliberateness question is inherently subjective and required a full hearing with oral evidence before it could be determined. The FTT at paragraph [111] confirmed that in a case turning on the taxpayer’s subjective state of mind, oral evidence is “centrally relevant.” Preparing clients to give coherent, consistent and credible evidence about their understanding of the scheme at the time of filing is therefore an essential part of the tactical preparation.

Practitioner Checklist

• ✓ Confirm the tax year and date of assessment – calculate which time limit window HMRC is relying on
• ✓ If assessments are more than six years old, identify whether HMRC has pleaded deliberate or careless conduct (or both)
• ✓ Locate all scheme documentation: promoter letters, counsel opinion references, loan agreements
• ✓ Obtain records from the accountant who prepared the relevant returns
• ✓ Identify any disclaimers in promoter materials and assess their impact on the reliance argument
• ✓ Consider whether the taxpayer had any specific reason to suspect the scheme was flawed (blind-eye point)
• ✓ Assess whether HMRC’s case rests on objective features of the scheme rather than evidence of the taxpayer’s actual knowledge
• ✓ Note the distinction: tax motivation ≠ deliberateness; careless due diligence ≠ deliberateness
• ✓ Consider whether the 20-year argument is HMRC’s only viable route – if so, the burden it faces is substantial
• ✓ Prepare the client for oral evidence on their state of mind at the time the returns were filed

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