The Staleness Defence Against HMRC Discovery Assessments

Even if an HMRC discovery assessment falls within the statutory time limit, it may still be defeated by the staleness doctrine: the rule that a discovery that has already been made or could reasonably have been made, cannot be resurrected later to justify a fresh assessment. This is one of the most powerful and under-used defences available to taxpayers.

What is the staleness doctrine?

The staleness doctrine is a principle of tax law that limits HMRC’s ability to raise a discovery assessment where the “discovery” on which it relies is not, in truth, a genuine new discovery at all.

The rationale is straightforward. Section 29 TMA 1970 gives HMRC the power to assess tax when an officer discovers an insufficiency. The word “discovers” connotes something new, a fresh realisation. If HMRC officers already had or could reasonably have been expected to have formed, the relevant view from information already in HMRC’s possession, there is nothing left to “discover.” A purported discovery made at a later date, based on the same facts, is a stale discovery and does not give rise to a valid assessment.

The foundational case: Cenlon Finance v Ellwood [1962]

The doctrine traces its origins to the House of Lords decision in Cenlon Finance Co Ltd v Ellwood [1962] AC 782. In that case, the House of Lords confirmed that the discovery power in the predecessor legislation could only be exercised where a genuine discovery had been made and that if the relevant information was already known to or accessible by, HMRC, the discovery power was spent.

Their Lordships’ reasoning has been consistently endorsed in subsequent cases. The principle is that the word “discovers” in the legislation must mean something real: it requires a genuine, new state of knowledge on the part of an HMRC officer. The discovery cannot be fabricated by an officer deliberately closing their eyes to information already in the system and then claiming to “find” it afresh at a more convenient moment.

Modern case law: Corbally-Stourton and Tooth

The doctrine has been applied and refined in more recent cases:

Corbally-Stourton v HMRC [2008] SpC 692

In this Special Commissioner decision, HMRC had conducted a number of exchanges with the taxpayer over the years and had access to information from which the relevant insufficiency could have been identified. When HMRC later raised a discovery assessment, the Special Commissioner held that the discovery had gone stale. The officer who raised the later assessment could not rely on a “new” discovery where HMRC had been in possession of the underlying facts for a substantial period. The assessment was quashed.

Roger Tooth v HMRC [2018] UKUT 38

The Upper Tribunal in Tooth addressed the discovery power in some detail. While the case primarily concerned the meaning of “deliberate inaccuracy,” the Tribunal’s analysis of when an officer can be said to have made a discovery is instructive for staleness arguments. The Tribunal confirmed that a discovery requires a genuine subjective belief, reached by an officer who has actually reviewed the material and that the legal framework permits the staleness argument to defeat an assessment where the facts support it.

Langham v Veltema [2004] EWCA Civ 193

As discussed in the main discovery assessment guide, the Court of Appeal in Langham v Veltema confirmed both the discovery threshold (genuine subjective belief) and the sufficient disclosure protection. The reasoning in this case underpins the staleness analysis: if HMRC had enough information to form the relevant belief earlier, an officer who does so later cannot sustain a valid assessment on that basis once the opportunity has passed.

The key question: what did HMRC know and when?

The staleness analysis always resolves to a factual inquiry: what information did HMRC possess and at what point in time would a reasonable officer reviewing that information have been expected to form the discovery?

This inquiry is distinct from, though related to, the s29(3) sufficient disclosure test. The sufficient disclosure test asks whether the information in the taxpayer’s return was sufficient. The staleness inquiry asks whether HMRC’s own intelligence, including third-party data, correspondence and information from previous enquiries, was sufficient to make the discovery possible at an earlier time.

A staleness argument is therefore most powerful where:

• HMRC received third-party data (for example, CRS or FATCA exchange information about overseas accounts) several years before raising the assessment
• HMRC conducted an earlier enquiry into the taxpayer’s affairs and had access to the relevant information during that enquiry
• HMRC received employer, bank or letting agency data that pointed directly to the underpayment but took no action for an extended period
• A previous HMRC officer had raised the issue informally in correspondence but no assessment was raised at the time

What “information HMRC held” means

For staleness purposes, the relevant information is not limited to what HMRC’s specific casework officer knew. The courts have looked at information in HMRC’s possession more broadly, including data held in the Connect system and information available to HMRC through third-party reporting channels.

This broader approach reflects the practical reality of modern HMRC operations. HMRC is a single organisation with access to centralised data systems. It would be artificial to treat a piece of information as “unknown” to HMRC because the specific officer who eventually raised the assessment had not personally reviewed the Connect record, when that data had been available to HMRC for years.

The following types of information are relevant to a staleness analysis:

• Tax returns and accompanying computations filed by the taxpayer
• Third-party data received under automatic exchange programmes (CRS, FATCA, AEOI)
• Employer PAYE returns and P60 data
• Bank interest certificates
• Land Registry transaction data
• Previous enquiry files and closure notices
• Correspondence between HMRC and the taxpayer or their representative
• Suspicious Activity Reports received by HMRC

When staleness typically arises

In practice, staleness arguments arise most frequently in the following scenarios:

1. Offshore exchange data received years before the assessment: HMRC receives CRS data from foreign tax authorities annually. Where that data clearly identifies undeclared income or assets and HMRC does not raise an assessment for three, four or five years, there is a strong argument that the discovery had gone stale by the time the assessment is eventually raised.
2. Previous enquiry not pursued: HMRC opens a s9A enquiry, reviews the taxpayer’s affairs and closes the enquiry without an adjustment. Years later, HMRC purports to raise a discovery assessment based on the same facts that were available during the earlier enquiry. The staleness argument is powerful, HMRC had its opportunity and did not take it.
3. HMRC visited the business and had records: Where HMRC conducted a VAT or PAYE compliance visit and had access to the business records, a later discovery assessment based on the same underlying records may be stale.
4. Prolonged inaction following a tip-off: HMRC receives information from an informant or via Suspicious Activity Reports and does nothing for several years. The delay itself may support a staleness argument.

How to run the staleness argument

Successfully raising a staleness argument requires careful preparation. The key steps are:

1. Construct a timeline. Document, as precisely as possible, what information HMRC received and when: dates of third-party data exchange, dates of previous enquiry correspondence, dates of any HMRC visits or compliance reviews.
2. Submit a Subject Access Request (SAR). Under UK GDPR, the taxpayer is entitled to personal data HMRC holds about them. An SAR should identify HMRC-held records including the dates on which relevant data was received into HMRC’s systems.
3. Consider a Freedom of Information request. FoIA requests can elicit information about HMRC’s processes and systems, for example, how quickly CRS exchange data is processed or when specific data categories were first received from a particular jurisdiction. This can support the argument that HMRC had the relevant information at an earlier date.
4. Identify the officer who raised the assessment. In tribunal proceedings, HMRC must confirm which officer made the discovery, when and on what information. Cross-examination of the relevant officer on when they (and HMRC more broadly) first had access to the material can be decisive.
5. Plead staleness as an alternative ground. On a discovery assessment appeal, staleness can be run alongside the statutory time-limit ground and the sufficient disclosure ground. All three can be pleaded in the alternative in a Notice of Appeal to the First-Tier Tribunal.

Interaction with the statutory time limits

The staleness doctrine and the statutory time limits in ss34–36A TMA 1970 are conceptually distinct and both can apply to defeat the same assessment:

• The time limits operate as a hard external bar: HMRC simply cannot raise an assessment after the applicable window has closed, regardless of when the discovery was made or what HMRC knew.
• Staleness operates as an internal bar: even within the statutory window, a purported discovery may be invalidated because HMRC’s state of knowledge makes it impossible to describe the later assessment as a genuine new discovery.

This means that even where HMRC’s assessment falls within the 6-year or 20-year window, a staleness argument may still succeed independently. Conversely, even where staleness does not succeed, a time-limit argument may. The two lines of defence should always be considered together.

For the detail of each statutory time limit, see our guide to discovery assessment time limits. For the appeal process, see how to appeal an HMRC discovery assessment.

Frequently asked questions

Related guides in this series

• HMRC discovery assessments: the complete guide
• Discovery assessment time limits: 4, 6 and 20 years
• How to appeal an HMRC discovery assessment
• Section 29 TMA 1970 explained
• Income tax investigation service
• Corporation tax investigation service