Tooth - U.K. Supreme Court finds that a computer’s inability to understand an explanation in a return did not render the return inaccurate

The tax return software used by Mr Tooth (which had been approved by HMRC) had a glitch, so that it did not permit him to claim a loss from a tax scheme in the box on the online return for employment losses (which was the correct box, had the scheme worked, which it did not). Instead, he entered it in the partnership loss box, coupled with an explanation in the adjacent “white space” that, rather than a partnership loss, it was an employment-related loss.

Whether HMRC was statute-barred from denying the loss (or, to use the U.K. terminology, whether it could issue a “discovery assessment”) turned on whether (as per s. 118(7) of the Taxes Management Act 1970) the insufficiency of the initial assessment of the year arose as “a result of a deliberate inaccuracy” in the return.

Lord Briggs and Lord Sales gave a joint judgment for the Court, finding that this reference to "deliberate inaccuracy" meant a statement which, when made, was deliberately inaccurate (i.e. the taxpayer intended to mislead HMRC), rather than a deliberate statement which was inaccurate. They stated:

Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely “inaccuracy”. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate.

Furthermore, as to whether there was an inaccuracy, there was no reason to depart from the usual approach to interpreting a document (here, the return) as a whole. They stated that although the online tax return form clearly stated that it would be read upon receipt by an HMRC computer:

A document written in the English language …does not have a different meaning depending upon whether it is read by a human being or by a computer. A choice by the recipient of such a document to have it machine-read cannot alter its meaning. Furthermore, the Revenue-approved online tax return form used by Mr Tooth and his advisors contained numerous “white spaces” … within which the taxpayer is invited to add information using his own words and phrases, so as to ensure that the declaration [was accurate].

Therefore, there was no inaccuracy in the return and, even if there were, it was not deliberate, as Mr Tooth did his best with an intractable online form. HMRC’s appeal failed.

Perhaps the same result would have obtained regarding a similar return filing in Canada, where s. 152(4)(a)(i) refers to “any misrepresentation that is attributable to neglect, carelessness or wilful default.” Has CRA improved its position by deliberately not providing much in the way of “white spaces” for explanations on its online returns?

Neal Armstrong. Summary of Revenue and Customs v Tooth [2021] UKSC 17 under s. 152(4)(a)(i).