Douglas Boulton v The Commissioners for HMRC

The Appellant contended that he did not at any stage have an overdrawn DLA. His evidence was that he was always remunerated through PAYE and that the loan balances recorded in the Company’s accounts represented accounting adjustments or uncredited payroll obligations, rather than money he had drawn. He relied on the Statement of Affairs at liquidation listing him as a creditor for £18,000 and submitted that this reflected the true position.

He further submitted that the Settlement Deed was a commercial agreement designed to bring to an end a long-running and stressful dispute with the liquidator and was expressly entered into on a non-admission basis. In his view, the agreement did not acknowledge the existence of any loan, nor did it operate to release or write off a debt. He argued that the liquidator’s letter of 27 April 2020 was merely descriptive, inconsistent with the Deed, and did not constitute an operative release or write-off for the purposes of section 415 Income Tax (Trading and Other Income) Act 2005 (“ITTOIA 2005”).

As regards the discovery assessment, the Appellant submitted that HMRC had been in possession of the Company’s accounting material and engaged with the liquidator from as early as 2016. He argued that any “discovery” in 2023 was no more than a re-review of information already known to HMRC and that the statutory bar in section 29(5) TMA 1970 applied because HMRC could reasonably have been expected to be aware of any alleged insufficiency long before the return was filed.

In respect of the penalty, the Appellant argued that the inaccuracy, if any, was not careless. He relied on informal discussions with his accountant and solicitor, maintained that he held a genuine belief that no loan existed, and submitted that a disagreement on the correct legal analysis cannot amount to carelessness. He further submitted that any inaccuracy, even if found, was not caused by carelessness, relying on causation principles explained in Mainpay Ltd v HMRC [2025] EWCA Civ 1290.

HMRC’s position was that the Company’s filed accounts and Corporation Tax Returns for the accounting periods ending 29 February 2012 and 28 February 2013 clearly recorded an overdrawn DLA owed by the Appellant. The liquidator pursued that debt until the Settlement Deed was concluded in March 2020.

HMRC relied on the Settlement Deed and the liquidator’s letter of 27 April 2020 as demonstrating, in substance, that the balance over £60,000 was released or written off in the 2019–20 tax year. They submitted that this engaged section 415 ITTOIA 2005 and constituted taxable income to the Appellant.

Regarding the discovery assessment, HMRC argued that the officer made a discovery when he reviewed the Appellant’s 2019–20 return in February 2023 and noted the absence of any declared release or write-off. They contended the statutory conditions for making a discovery assessment were satisfied. In particular, they argued that the return contained no information relating to the release or write-off and therefore the officer could not reasonably have been aware of the insufficiency from the information made available under section 29(6) TMA 1970. They further argued that the omission was brought about by carelessness, satisfying section 29(4) TMA 1970.

As to the penalty, HMRC maintained that the omission in the return constituted a careless inaccuracy. They contended the Appellant failed to take reasonable care after being expressly advised by the liquidator to declare the amount, failed to seek or provide tax-specific advice, and failed to include any white-space disclosure. They further submitted there were no special circumstances or grounds for suspension of the penalty.

We were referred to the following statutory provisions.

Section 29 TMA 1970— Assessment where loss of tax discovered

Section 455 Corporation Tax Act 2010 (‘CTA 2010’) — Charge to tax for loan to participator

Section 415 ITTOIA 2005 — Charge to tax under Chapter 6

Section 416 ITTOIA 2005 — Income Charged

Schedule 24 Finance Act 2007 (‘FA 2007’) — Penalties for Errors

The issue for this Tribunal to determine are:

In this appeal, the burden of proof is divided between the parties depending on the issue. In relation to the validity of the discovery assessment under section 29 TMA 1970, the initial burden rests with HMRC. They must establish, on the balance of probabilities, that an officer made a “discovery” of an insufficiency of tax and that the statutory conditions for issuing such an assessment were met. This requires HMRC to show either that the loss of tax was brought about by the Appellant’s careless behaviour within section 29(4), or that no officer could reasonably have been expected to be aware of the insufficiency from the information made available when the enquiry window closed, within section 29(5).

If HMRC discharge this initial burden and the assessment is found to be validly made, the burden then shifts to the Appellant, who must demonstrate that the amount assessed is incorrect or excessive. The Appellant bears the responsibility for showing, again on the civil standard of the balance of probabilities, that the quantum of tax charged should be reduced or removed.

In relation to the penalty imposed under Schedule 24 FA 2007, the burden rests throughout on HMRC, who must prove that the Appellant’s return contained an inaccuracy, that the inaccuracy led to a loss of tax, and that it was brought about by the Appellant’s failure to take reasonable care. HMRC must therefore satisfy the Tribunal, on the balance of probabilities, that the statutory conditions for imposing the penalty are met. If HMRC establish those elements, the evidential burden then moves to the Appellant to show that the penalty is incorrect or that a reduction or suspension is justified, including any contention based on reasonable excuse.

The Appellant adopted his witness statement dated 3 October 2025. He stated that the Company’s loan entries and subsequent DLA figures were incorrect and reflected accounting errors or uncredited wages. He explained his belief that no debt to the Company existed and that he had conveyed this to the liquidator at the time.

He stated that the Settlement Deed was intended as a full and final commercial settlement and did not represent an acknowledgment that any loan existed. He asserted that he had relied on his advisers in reaching that settlement. He accepted receiving the liquidator’s letter of 27 April 2020 but maintained that it was inconsistent with the Deed and that it did not reflect any legal write-off.

He accepted under cross-examination that the Company’s accounts showed an overdrawn loan account but denied that the figures represented the true underlying position. He acknowledged, however, that no documentary evidence of tax-specific advice had been provided to HMRC during their correspondence.

He gave evidence of his personal and financial pressures at the time of the liquidation and settlement, including health issues and financial difficulties following the Company’s collapse. He said these pressures explained why he entered into the Settlement Deed.

HMRC’s Officer, Mr Steven Ornoch, adopted his witness statement dated 15 August 2025. He described HMRC’s involvement with the Company and the Appellant since 2016 and the correspondence with the liquidator regarding the DLA.

He explained that the Company’s accounting records for the year ended 28 February 2013 showed a DLA of £151,802 owed by the Appellant and that the liquidator had pursued that amount until the 2020 settlement.

He described the events following the Settlement Deed, including HMRC’s request that the liquidator write to the Appellant, the liquidator’s letter of 27 April 2020 stating the balance was “effectively written off”, and his own review of the Appellant’s 2019–20 return on 2 February 2023.

He explained HMRC’s rationale for concluding that a release or write-off occurred, the basis for the revised quantification of £91,802, and his reasons for determining that the Appellant’s behaviour was careless. He accepted under cross-examination that HMRC’s figures had changed but maintained that the revised amount was the correct quantification.

The officer explained that although the inaccuracy arose in only one tax year, this was not the sole factor in considering suspension. He observed that the Appellant’s previous returns had been correctly filed, but he could not identify any specific behaviour that would be changed or improved through suspension conditions. As the Appellant was already represented by an agent, the officer considered that no practical or effective conditions could be set which would help prevent future inaccuracies. Accordingly, he concluded that suspension was not appropriate.

We found both witnesses honest and doing their best to assist the Tribunal. However, given the passage of time, we have given the most weight to contemporaneous documentary evidence. The Company’s filed accounts and tax returns were prepared and signed at the relevant time and record a consistent and increasing overdrawn DLA owed by the Appellant.

The Appellant’s recollection of events and his belief that the DLA entries were incorrect were not supported by contemporaneous documentation. No accounting records contradict the figures shown in the 2012 and 2013 accounts, nor any evidence of repayment or credit that would reduce the balance.

In addition to the documentary evidence to which we were referred, contained in the bundles set out at [2] above, we have carefully considered the witness evidence and the submissions made on behalf of each party. We make the following findings of fact.

We find that the Company’s filed accounts and Corporation Tax Returns for the year ended 29 February 2012 recorded advances to the Appellant of £58,332, which remained outstanding at the end of that accounting period. These documents, prepared contemporaneously and signed by the Appellant in his capacity as director, are reliable evidence of the Company’s accounting position at that time.

We further find that the Company’s filed accounts and Corporation Tax Return for the year ended 28 February 2013 recorded an increased director’s loan balance of £151,802 owed by the Appellant. No accounting evidence was produced by the Appellant to contradict these figures, and no records demonstrate any repayment, credit, or adjustment that would reduce or extinguish that balance.

Although the Statement of Affairs signed by the Appellant in June 2014 showed him as a creditor for £18,000, this document was not drawn from the Company's accounting system and does not, in our view, displace the contemporaneous statutory financial statements. The Statement of Affairs does not provide evidence of repayment of the amounts shown in the 2012 and 2013 accounts and cannot explain the discrepancy between the accounting records and its content.

The Appellant’s explanation that the overdrawn DLA resulted from uncredited payroll obligations is not supported by any contemporaneous accounting evidence. No ledger entries, payroll adjustments, or accounting schedules were produced demonstrating that such sums were due to him or credited to the DLA. The payroll records within the supplementary bundle do not evidence any credits that would reduce the DLA balance in the Company’s accounts. We therefore find that the Appellant has not provided contemporaneous accounting documentation capable of overturning the balances recorded in the Company’s filed accounts for 2012 and 2013.

We find that the Settlement Deed dated 10 March 2020 was a full and final settlement of the liquidator’s outstanding claims against the Appellant. The Deed was expressly made without admission of liability and did not quantify any particular debt. The Deed provided for payment by the Appellant of £60,000 and stated that this payment settled all claims the liquidator might have. The Deed does not itself describe any operative release or write‑off of a debt. However, it did bring the liquidation litigation to an end.

We find that, following the Settlement Deed, the liquidator wrote to the Appellant on 27 April 2020, stating that the balance above £60,000 was “effectively written off” and that the Appellant should declare that amount on his next Self‑Assessment tax return. The letter was sent at HMRC’s request. We further find that after the Settlement Deed and this letter, the liquidator took no further steps to pursue any balance alleged to be owing from the Appellant. Recovery action ceased entirely.

The Appellant submitted his Self‑Assessment return for 2019–20 on 1 April 2021. He did not include any entry relating to a release or write‑off of a director’s loan. The return contained no white‑space disclosure indicating that a dispute existed regarding the DLA or that the Appellant understood the liquidator’s letter differently from how it was expressed. No evidence of written tax advice was produced demonstrating that the Appellant had sought or received advice, from either his accountant or solicitor, as to whether the settlement or the liquidator’s letter had tax consequences.

We find that HMRC’s Officer reviewed the Appellant’s 2019–20 return on 2 February 2023 and noted that no amount relating to the settlement had been declared. This was the first occasion on which the officer formed the view that tax had been understated in the return, and there was no information within the return or accompanying documents to alert him to the issue.

On the basis of the Company’s accounts for 2013 showing a DLA balance of £151,802, and the Settlement Deed confirming a payment of £60,000 in full and final settlement, we find that the remaining balance, £91,802, accurately reflects the amount which the liquidator subsequently treated as concluded and which he instructed the Appellant to declare.

We have carefully considered each of the Appellant’s submissions as set out in his skeleton argument and developed in oral submissions by his counsel, including his arguments on HMRC’s historic knowledge and alleged prior awareness of the insufficiency, whether the Settlement Deed could constitute a release or write‑off despite its non‑admission clause, the alleged inconsistency and evolution of HMRC’s quantification, and whether any inaccuracy was caused by carelessness. We address these arguments below. We have also considered HMRC’s skeleton and oral submissions at the hearing, the witness evidence, and the documentary materials in the bundles. In reaching our conclusions we have applied the findings of fact already set out above and the relevant statutory provisions.

We first address whether an officer of HMRC made a discovery within the meaning of section 29(1) TMA 1970. We agree with HMRC’s submission that HMRC v Tooth [2021] UKSC 17 (“Tooth”) at [61] confirms discovery is not confined to new facts. On the findings above, the officer reviewed the Appellant’s 2019–20 Self‑Assessment return on 2 February 2023. He noted that the return did not include any amount relating to a release or write‑off of the director’s loan, notwithstanding the liquidator’s explicit notification in 2020 that the balance above £60,000 was regarded as written off and should be declared.

We have found as a fact that the officer did himself make a discovery of the under-assessment to tax and we consider that it was his state of mind which mattered, and not the wider institutional knowledge that may exist elsewhere within HMRC (see Tooth at [78]). We do not accept the Appellant’s submission that this was a mere “second thought” or a re‑evaluation of matters known years earlier. The discovery occurred only when the officer compared the 2019–20 return with the information previously communicated by the liquidator in 2020, and noted the omission. We consider he had formed his own opinion, more than suspicion, that the assessment of tax in his return was insufficient (see Tooth at [86]). He concluded that the Appellant’s return understated the tax properly chargeable. We consider his belief was one that a reasonable officer could form in light of the information before him (see Jerome Anderson v HMRC [2018] UKUT 159 (TCC) at [30]).

The Appellant relied on the evolution of HMRC’s figures as evidence that no obvious insufficiency existed, and therefore no discovery could reasonably have been made. We do not agree. The change in HMRC’s quantification reflects corrections to earlier computational errors, not uncertainty as to whether the amount should have been declared. The evidential basis for the quantum, namely, the 2013 accounts and the settled sum, is clear and was not in dispute.

Accordingly, we find that a valid discovery was made for the purposes of section 29(1) TMA 1970.

We next consider whether the insufficiency was brought about by the Appellant’s careless behaviour. Whether acts or omissions are careless involves a factual assessment having regard to all the relevant circumstances of the case. The conduct of the individual taxpayer is to be assessed by reference to a prudent and reasonable taxpayer in his position (see HMRC v Hicks [2020] UKUT 12 (TCC) at [120]).

The Appellant argued that he reasonably believed no loan existed and relied upon discussions with his accountant and solicitor, although no tax‑specific advice was produced to HMRC during their correspondence or adduced before the Tribunal. The Appellant received a letter from the liquidator in April 2020 stating expressly that the balance over £60,000 was “effectively written off” and that he should declare that amount on his next tax return.

We consider a reasonable taxpayer in his position would have obtained written advice verifying the tax treatment of the settlement and the liquidator’s letter, or at minimum would have disclosed the point in the white space of the return. The Appellant did neither. The omission in these circumstances was caused, in our view, by a failure to take reasonable care.

We therefore conclude that section 29(4) is satisfied.

We now turn to whether the statutory bar in section 29(5) TMA 1970 applies. The Appellant submitted that HMRC were already aware of the matters said to give rise to the insufficiency, pointing to HMRC’s interactions with the Company and the liquidator between 2016 and 2020.

In applying section 29(5) TMA 1970, we remind ourselves that the question is an objective one namely, whether a hypothetical officer could reasonably have been aware of the insufficiency from the information (see Langham v Veltema [2004] EWCA Civ 193 (“Langham v Veltema”) at [33].

We accept that HMRC had access to corporate accounting material and correspondence in the years preceding the 2019–20 return. However, the statutory test focuses on whether an officer could reasonably have been aware of the insufficiency from the information made available in or with the relevant return, as defined exhaustively in section 29(6) TMA 1970. Material held by HMRC from earlier compliance activity, company records, or liquidation correspondence does not constitute information “made available” unless it accompanied the return or was provided in the course of an enquiry into it.

The Appellant’s 2019–20 return contained no reference to any settlement, dispute, release or write‑off, and no white‑space disclosure alerting HMRC to an issue. Therefore, even if HMRC possessed background knowledge from earlier periods, that does not satisfy section 29(5) TMA 1970. Consistent with the principles set out in Langham v Veltema at [36], information must be provided through the channels prescribed by statute, and the mere fact that HMRC may have held other documents or could have drawn inferences from them does not bar a discovery assessment.

The Appellant further submitted that because HMRC had been in correspondence with the liquidator since 2016, and because HMRC requested the wording of the liquidator’s April 2020 letter, HMRC must already have been aware of all material facts. We do not accept this. Section 29(5) requires that the relevant information be made available in or with the return or otherwise through the statutory gateways in section 29(6). The fact that HMRC may have assisted in drafting correspondence during the liquidation process is not part of the information made available when the Appellant filed his 2019–20 return. Prior operational involvement does not satisfy the statutory test.

We also reject the submission that HMRC’s historic involvement imputes knowledge to the officer for section 29(5) purposes. The test is what a hypothetical officer could reasonably have inferred from the information made available under section 29(6). Background knowledge held elsewhere within HMRC does not constitute such information. We also note that until the submission of the 2019–20 return, the hypothetical officer could not be aware of an insufficiency of tax as they are unaware of the treatment applied by the taxpayer to the transaction and the implications of this on the calculation of the tax liability.

Accordingly, we conclude that the statutory bar in section 29(5) does not apply.

For the reasons set out above, we have concluded that a discovery was made for the purposes of section 29(1) TMA 1970. In our judgment, the bar in section 29(5) does not bite on the facts of this case, and, in any event, we consider section 29(4) is satisfied because the omission resulted at least from carelessness.

Accordingly, we find the discovery assessment was validly made under section 29 TMA 1970.

We next address whether there was a release or write‑off within the meaning of section 415 ITTOIA 2005.

The Appellant submitted that the Settlement Deed was expressly stated to be without admission of liability and did not identify or quantify any loan. He argued that a release under section 415 requires an operative act and that the liquidator’s description of the balance as “effectively written off” was not such an act. He further relied on the absence of any quantified write‑off in corporate filings.

We were referred to Quillan v HMRC [2025] UKFTT 421 (TC) (“Quillan”) at [37]. In that appeal, it was common ground between the parties that releasing a debt would involve a more formal process than writing it off. We were also referred to the judgments in Collins v Addies [1992] STC 746, Collins v Addies [1991] STC 445 and England & Anor v HMRC [2023] UKFTT 313 (TC) (“England”). Having considered the submissions made by both parties regarding these authorities, we consider the question of whether there has, on the facts, been a ‘release’ is a legal question involving analysis of the legal effect of the Settlement Deed but also all of the circumstances (see England at [30]).

We find that the liquidator had, prior to the settlement, actively pursued recovery of the amount recorded in the 2013 accounts. Following the execution of the Settlement Deed and payment of £60,000, the liquidator ceased all recovery action and notified the Appellant in clear terms that the remaining balance was treated as written off and should be declared for tax purposes. The cessation of recovery action, the communicated position of the liquidator, and the absence of any continuing claim are together, in our view, sufficient to constitute a release for the purposes of section 415(1)(b), notwithstanding the absence of an express admission of liability in the Settlement Deed. While the Appellant emphasised the non‑admission clause, that clause regulates civil liability but does not determine tax consequences and does not prevent a release from arising where, as here, the liquidator elects not to pursue the balance and clearly communicates that position. In these circumstances, we also reject the submission that the absence of an express contractual release prevents the statutory charge arising.

The Appellant argued that the liquidator’s letter was not an operative act because it was sent at HMRC’s request. We do not accept this. The liquidator had authority to act on behalf of the Company and expressly communicated that the remaining balance would no longer be pursued. The letter records the liquidator’s decision, irrespective of who suggested that such communication be sent. The act of ceasing enforcement was that of the liquidator alone.

Our conclusion is therefore that there was a release of the debt. If we are wrong on that, we find that the debt was written off.

On the question as to whether there was a write‑off, the Appellant argued that, as held in Quillan at [59]–[62], a write-off is not triggered by accounting history, insolvency outcomes or HMRC’s view of commercial reality. We have carefully considered those paragraphs of that decision, which state:

We consider that the legal test is whether, as a matter of substance, the debt was written off. The Appellant placed weight on the non‑admission clause in the Settlement Deed. We accept that this clause means the Appellant did not concede liability. However, section 415 does not require an admission of liability, and we do not consider the non‑admission clause precludes a write‑off where the liquidator, having actively pursued recovery, then notifies the Appellant that they regard the balance as concluded and ceases enforcement. In Quillan, the liquidator expressly stated the loan had not been written off. Here, the liquidator expressly stated it had been effectively written off and ceased enforcement. It is our finding that the liquidator’s letter reflected a clear, unilateral decision no longer to pursue the balance. As section 415 applies to a unilateral write‑off, this is sufficient.

While the liquidator did not undertake a formal statutory write‑off process, section 415 does not require adherence to any particular insolvency mechanism. It requires a substantive write‑off, which may be effected by an unequivocal communication and the cessation of enforcement. In our judgment, the combination of the settlement and the subsequent letter by the liquidator satisfies the statutory requirement.

Our finding is therefore that the debt was written-off. A finding to the contrary would ignore the intentions of the liquidator’s actions and the plain meaning of his language when he said that the loan balance had been effectively written off (see Quillan at [61] above).

We agree with the quantification used by HMRC in their revised position, being £151,802 less £60,000 (i.e. £91,802), which is supported by the filed 2013 accounting position and the undisputed settlement sum.

Turning to the penalty, HMRC asserted that the Appellant was at least careless in completing his self-assessment return omitting the released or written off amount. In determining the issue, we accept the Appellant’s submission that the standard is that of a prudent and reasonable taxpayer in the Appellant’s position under Collis v HMRC [2011] UKFTT 588 (TC) at [29].

Reliance on advisers may negate carelessness if the taxpayer has reasonably sought and followed competent advice. However, here no documentary evidence of tax‑specific advice was provided, and the Appellant accepted that he did not obtain written confirmation of the tax treatment of the settlement. We note the Appellant’s reliance on informal conversations with his accountant and solicitor. However, without contemporaneous written advice, we cannot conclude that he reasonably relied on competent professional advice. We consider that a prudent taxpayer would seek clear and documented advice before omitting an amount they had been expressly told to declare, and here the liquidator’s letter expressly directed the Appellant to declare the amount.

The Appellant argued that the liquidator’s letter was generated at HMRC’s request, used the phrase “effectively written off”, and did not identify any corporate or insolvency act of release or write-off. However, we do not accept that it was reasonable in the circumstances for the Appellant to simply treat that letter as a statement of HMRC’s view and neither follow that instruction nor include a white‑space disclosure in his self-assessment return.

We were referred to Mainpay Ltd v HMRC [2025] EWCA Civ 1290 at [108]–[110], where the Court of Appeal confirmed that Schedule 24 requires a causal link between behaviour and loss of tax. A penalty cannot be imposed merely because HMRC later take a different view. However, we do not agree that the loss here arose from HMRC’s retrospective legal characterisation of the settlement, as the Appellant submitted. The Appellant also argued that because HMRC themselves revised their figures, any inaccuracy could not have been caused by his carelessness. However, we consider the revision of HMRC’s figures does not affect causation. The inaccuracy arose because the Appellant failed to declare any amount at all and failed to disclose the dispute. We are satisfied that the failure to obtain formal tax advice and the absence of any disclosure on the return were causative of the inaccuracy. We are also satisfied that the inaccuracy was brought about by a failure to take reasonable care, and that this failure caused the understatement of tax.

We have also considered whether the penalty should be suspended or reduced for special circumstances, but no circumstances were identified that would justify such action under Schedule 24. The inaccuracy occurred in only one year and we accept that HMRC could not identify any behaviour that suspension conditions could realistically change to assist the taxpayer to avoid future penalties, meaning suspension was not appropriate.

For the reasons set out above, we find that HMRC validly made a discovery assessment under section 29 TMA 1970, that the settlement and subsequent correspondence constituted a release or write‑off within section 415 ITTOIA 2005, and that the Appellant’s return contained a careless inaccuracy giving rise to the penalty charged under Schedule 24 FA 2007.

The appeal is therefore dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.