HMRC v Harte: Why the Upper Tribunal’s ruling matters for COP9 disclosures

HMRC can go back and assess additional tax where it believes a return understated a liability, but how far back it can go depends on why the understatement happened.

Where a taxpayer submitted a return and took reasonable care but still made a mistake, HMRC’s assessment window is four years and if the error was careless, that extends to six years.

For deliberate acts, this window widens dramatically to twenty years. That distinction sounds simple until a case involves several separate errors, each arising for a different reason.

An Upper Tribunal decision this year has confirmed how HMRC should treat exactly this scenario and the answer has real significance for anyone going through a Code of Practice 9 disclosure.

The facts in HMRC v Harte

The taxpayer in this case, Shaun Harte, had underpaid tax as a result of several separate issues within his affairs.

HMRC and Mr Harte were not in dispute about the underlying facts. They agreed that each error had its own distinct cause.

Some were straightforward mistakes made despite reasonable care, while others were careless, but a further set were deliberate.

HMRC’s position was that because some of the conduct was deliberate, the twenty-year time limit should apply to the whole of the underpayment, including the elements that arose from mistakes and carelessness.

On that reasoning, the deliberate behaviour should set the assessing period for everything else, which could have a material impact on the action taken by HMRC.

What the tax tribunal decided

The Upper Tribunal rejected that approach and upheld the First Tier Tribunal’s decision. It held that each error has to be assessed against its own facts and its own behaviour.

It held that the original timelines in the legislation – four years for an error with reasonable care, six years for a careless error, and 20 years for a deliberate error – should be followed.

In other words, behaviour is assessed error by error rather than applied across the board once the worst example of conduct has been identified.

This was a decision on HMRC’s own appeal against an earlier First-Tier Tribunal ruling, so it now stands as a binding precedent for how mixed-behaviour cases should be approached.

Why this matters under COP9

Code of Practice 9 is the framework HMRC uses when it suspects deliberate tax fraud. A taxpayer under COP9 makes a full disclosure of every irregularity in their affairs in return for HMRC agreeing not to pursue a criminal investigation.

A COP9 disclosure rarely uncovers a single clean issue. It is far more common to find a mix of genuine errors, careless oversights and, in some years, deliberate underpayment sitting alongside each other in the same set of affairs.

Before this ruling, there was a real risk that HMRC would treat the presence of any deliberate conduct as a licence to assess the full twenty years across everything disclosed, regardless of how the other errors arose.

The Upper Tribunal has closed that door. Each irregularity disclosed under COP9 now has to be tested against its own behaviour and its own applicable time limit.

A mistake made with reasonable care in year twelve cannot be swept into a twenty-year assessment simply because a different error in year three was deliberate.

What this means in practice for the COP9 process

For anyone in or approaching a COP9 process, this decision limits the tax exposure that can arise from historical errors that were not deliberate.

It supports a more disciplined approach to disclosure, where each irregularity is categorised on its own merits rather than lumped together under the worst behaviour.

It also removes a disincentive that worked against HMRC’s own objectives. Voluntary disclosure under COP9 depends on taxpayers coming forward with confidence that the process will be applied fairly.

Had HMRC succeeded on this point, that confidence would have been harder to justify, and the incentive to disclose historical discrepancies voluntarily would have been correspondingly weaker.

Anyone currently working through a COP9 disclosure, or advising a client through one, should make sure that each error identified is separately assessed for behaviour and time limit rather than assumed to fall under the widest window in play.

If you are worried about a tax investigation being launched against you, please speak to our experts.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email joe.mcdermott@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients