HMRC Loses Case to Apply 20 year Penalty Window to Accidental Errors

Upper Tribunal confirms behaviour‑based time limits must be applied separately to each error

The Upper Tribunal has ruled that HMRC cannot use the 20‑year time limit for deliberate behaviour to assess all errors within a tax year where only some of those errors were deliberate. The decision in HMRC v Shaun Harte [2026] UKUT 112 (TCC) provides important clarity on how discovery assessments must be constructed and offers welcome protection for taxpayers entering voluntary disclosure processes.

Background to the case

HMRC opened an investigation into Shaun Harte, a self‑employed consultant, and identified several understatements of tax. Crucially, the errors arose from different types of behaviour:

• Some were deliberate
• Some were careless
• Some occurred despite the taxpayer taking reasonable care

Under s.29 and s.36 Taxes Management Act 1970, HMRC’s ability to raise discovery assessments depends on the behaviour that caused each insufficiency:

HMRC argued that if any insufficiency in a tax year was deliberate, the entire assessment for that year should fall within the 20‑year window. This approach would have significantly increased Harte’s exposure, with HMRC seeking between £58,653 and £78,682 per year.

Tribunal findings

First-tier Tribunal (FTT)

The FTT rejected HMRC’s “one deliberate error taints the whole year” approach. It held that:

• Each insufficiency must be assessed independently
• HMRC cannot apply the 20‑year limit to errors that were merely careless or non‑culpable

The FTT reduced HMRC’s assessments accordingly.

Upper Tribunal (UT)

HMRC appealed, but the Upper Tribunal upheld the FTT’s decision.

The UT confirmed that:

• The legislation requires a behaviour-by-behaviour analysis
• HMRC cannot rely on a single deliberate error to extend time limits for unrelated mistakes
• None of HMRC’s cited authorities supported its broader interpretation

As an Upper Tribunal decision, the ruling now sets a binding precedent.

What this means for taxpayers

1. Fairer treatment in investigations

HMRC must now apply the correct statutory time limit to each individual error, preventing disproportionate assessments.

2. Greater certainty in COP9 and voluntary disclosures

Taxpayers making non‑deliberate mistakes will not be exposed to 20‑year assessments simply because other issues in the same period were deliberate.

3. Stronger grounds for challenging discovery assessments

Where HMRC aggregates multiple behaviours into a single assessment, advisers can now rely on this precedent to seek reductions.

Comment

The Harte ruling reinforces a fundamental principle: HMRC must match the time limit to the behaviour that caused each individual error. This ensures proportionality and provides important safeguards for taxpayers facing complex investigations.