In the case of Boulton v HMRC [2026] UKFTT 583 (TC), the FTT has dismissed the appeal against a discovery assessment charging tax on the release of a director’s loan account and against the associated penalty for a careless inaccuracy.
INCOME TAX validity of discovery assessment and penalty — whether a settlement agreement with liquidator constituted a release or write‑off of director’s loan — yes — whether return contained a carelessness inaccuracy — yes — appeal dismissed
The liquidators of the Appellant’s company had noted a discrepancy between the director’s loan account as reported in the latest submitted accounts and the statement of affairs produced on liquidation. Having pursued the Appellant for the balance per the accounts, the liquidator accepted a lower sum via a Settlement Deed, but advised the Appellant that the balance was “effectively written off” and that the amount should be disclosed on his next self‑assessment return. The Appellant failed to disclose the amount, disputing that the figures were accurate and arguing that, as the terms of the Settlement Deed expressly did not admit to liability, there was no release for tax purposes. HMRC subsequently raised a discovery assessment to collect income tax on the written-off amount.
The Appellant challenged the discovery assessment, arguing that HMRC had been in receipt of the relevant information from the liquidator so no discovery had been made. The FTT rejected this, judging that the officer had made a discovery of the under-assessment (“we consider that it was his state of mind which mattered, and not the wider institutional knowledge that may exist elsewhere within HMRC”). The FTT also found that the Appellant had been careless as he had neither sought formal tax-specific advice to support his position nor disclosed the facts in the white space. The FTT also found that the material that HMRC already had did not constitute information “made available” as the material had not accompanied the return or was not provided in the course of an enquiry into it. The discovery assessment was therefore valid.
Considering whether the agreement with the liquidator constituted a taxable release, the FTT concluded that:
“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.”
With regards to the penalty, the FTT judged that:
“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.”
https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/583
Related content from Claritax Books
Discovery Assessments, by tax barrister Keith Gordon, is a detailed, clearly written guide to the law and practice in this area. Based on the author’s personal involvement in many leading cases, the book contains much practical advice explaining when and how such assessments may be challenged.
