HMRC Discovery Assessment Out of Time: First-Tier Tribunal Rules in Taxpayer's Favour

Outram v HMRC [2026] UKFTT 248 (TC)

The First-tier Tribunal (Tax Chamber) has allowed appeals brought by brothers Anthony and Ross Outram against discovery assessments issued by HMRC for the 2005–06 tax year, finding that neither brother had deliberately brought about a loss of tax.

Background

The case concerned a marketed tax avoidance scheme promoted by the Montpelier Group, known as the "Pendulum" arrangements. In early 2006, both brothers entered into contracts with Pendulum Investment Corporation — a Seychelles-registered company — structured as contracts for difference (CFDs) linked to the FTSE 100. The scheme was designed to generate substantial trading losses for tax purposes, which could then be offset against income.

Anthony Outram claimed a trading loss of £216,273 and Ross Outram claimed £506,370 in their self-assessment returns, prepared by their accountants Barnes Roffe LLP. Both brothers have since conceded that the arrangements were ineffective to achieve their intended tax outcome.

The Key Question

HMRC issued the assessment in February 2015 — nearly a decade after the tax year in question. This was only possible under the extended 20-year time limit, which applies where a taxpayer has deliberately brought about a loss of tax under section 36(1A)(a) of the Taxes Management Act 1970.

The sole issue before the Tribunal was therefore whether the brothers had acted deliberately — either by knowingly filing inaccurate returns, or by "turning a blind eye" to the true position.

The Tribunal's Decision

Applying the subjective test established by the Supreme Court in HMRC v Tooth [2021], the Tribunal found that HMRC had failed to prove deliberate conduct on the part of either brother.

The Tribunal accepted that both brothers genuinely believed the arrangements had been vetted by senior tax counsel, and that they relied in good faith on Montpelier's assurances and their accountants' preparation of their returns. Although no written counsel's opinion was ever shown to them, and the loan agreements intended to fund the margin calls were never in fact executed, the brothers were unaware of these shortcomings at the time of filing.

Critically, the Tribunal found that carelessness — even significant carelessness — is not enough to meet the legal threshold of deliberateness. The brothers' failure to probe the details of the loan arrangements amounted to misplaced trust rather than a conscious decision to avoid an inconvenient truth.

Why It Matters

This case is a reminder of the high bar HMRC must clear when invoking the extended 20-year assessment window. The Tribunal reaffirmed that the test for "deliberate inaccuracy" is entirely subjective: what matters is what the taxpayer actually knew or suspected at the time, not what a reasonable taxpayer should have done.

For those who participated in marketed tax avoidance schemes on professional advice, the decision offers some comfort, though it also highlights the risks of relying on scheme promoters without seeking independent verification.