Ball Europe - Accounting Entry Not Included In Tax Return Sufficient To Preclude Discovery Assessment

• Published date: 26 April 2021
• Subject Matter: Tax, Tax Authorities
• Law Firm: Reynolds Porter Chamberlain
• Author: Mr Harry Smith

In Ball Europe Ltd v HMRC [2021] UKFTT 23 (TC), the First-tier Tribunal (FTT) has held that the presence of amounts in a taxpayer's accounts but not its tax return was sufficient for a 'hypothetical officer' of HMRC reasonably to be expected to be aware of a tax insufficiency and this prevented HMRC from issuing a valid discovery assessment

Background

Ball Europe Ltd (BEL) was incorporated and resident for tax purposes in the UK. It was part of a US-headquartered international group. Various members of the group entered into an inter-company loan facility on 21 January 2003. Part of the transaction involved the issue of a loan note to BEL in the amount of '10,812,449. Although it did not refer to this loan note in its tax return, it did include it in five places in the relevant set of annual accounts, including the Statement of Recognised Gains and Losses (STRGL). The accounts included a specific reference to BEL having 'made an unrealised gain by receiving a promissory note due from a fellow group undertaking of '10,812,449'.

HMRC issued a discovery assessment to BEL on 12 July 2006, assessing the principal value of the promissory note to corporation tax. BEL appealed the discovery assessment and a review of HMRC's position was requested. HMRC confirmed its position in November 2010. The appeal was notified to the FTT in December 2010 and the appeal was stayed behind a lead case, the decision in which was to determine whether the promissory note constituted taxable income.

In February 2019, it was agreed that the validity of the discovery assessment should be brought before the FTT for determination. The parties agreed that, in light of the decision in the lead case, the gain made on the income from the loan note was taxable, but they did not agree on whether the discovery assessment had been validly raised.

Relevant law

Paragraph 41, Schedule 18, Finance Act 1998 (FA98) provides that a revenue officer may make a discovery assessment if he or she discovers that an amount which ought to have been assessed to tax has not been so assessed. Where a company has delivered a return for the relevant period, this power may only be exercised after the closure of the enquiry window if the officer 'could not have been reasonably expected, on the basis of the information made available to them before that time, to be aware of [the deficiency of tax]' (paragraph 44(1), FA98).

Information is regarded as being available to an officer of HMRC if it is contained in a...