What is a Discovery Assessment? When can HMRC make a Discovery? What are the time limits for Discovery Assessment?
This is a freeview 'At a glance' guide to Discovery Assessments.
Subscribers see Discovery Assessments for full details, examples and current case law and developments.
At a glance
HMRC have the power to re-open a past year of assessment if they discover an under-assessment that results in a loss of tax and the time limit to open an enquiry has passed.
Discovery assessments can only be raised where an HMRC officer reasonably suspects:
- That an amount of Income Tax or Capital Gains tax has not been taxed.
- That an assessment of tax is or has become insufficient.
- That a claim for relief is excessive.
No assessment can be raised unless one or more of the following conditions are met:
- The behaviour of the taxpayer must be careless or deliberate.
- The HMRC officer could not, at the time when HMRC ceased to be entitled to open an enquiry, or after issuing a closure notice, be reasonably expected to have been aware of the insufficiency.
Other points:
- HMRC must adhere to the time limits. The number of years after the end of the tax year that HMRC may go back to depends on the type of failure.
- Where a return has been submitted under Self Assessment, the Discovery provisions provide that HMRC must meet certain conditions and the time limits for Discovery depend on underlying conduct of the taxpayer or their agent in preparing that return.
- No discovery is possible without evidence: the onus is on HMRC to prove an incomplete disclosure or loss of tax.
- A future discovery can be avoided by including suitable disclosures on a Return.
Time limits may extend where HMRC is able to adopt the Presumption of continuity and it is presumed that the same loss of tax will arise year on year. It is then up to the taxpayer to show that there was no continuity of the fault.
Time limits
|
Time limit (years) |
Fault |
Cause |
|
4 |
Incomplete disclosure |
Not due to careless or deliberate conduct |
|
6 |
A loss of tax |
Due to careless conduct by the taxpayer or person acting on their behalf |
| 12 | Incomplete disclosure/loss of tax offshore offences: IT, CGT & IHT | Not due to careless or deliberate conduct or due to carelessness |
| 20 |
A loss of tax |
|
It is up to the HMRC officer raising the assessment to decide if the loss of tax was careless or deliberate, their conclusion will depend on various factors such as:
- Nature of the underlying error.
- Size and importance of the matter.
- Any professional advice taken.
The officer must have evidence to support his conclusion.
Taxpayers are also restricted as to the number of years that they may go back to seek relief from an overpayment after making an error or mistake in a return, see Overpayment relief.
Useful guides on this topic
Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?
Failure to Notify Chargeability
What is failure to notify chargeability to tax? What happens if you fail to notify HMRC about your taxes? What penalties apply for failing to notify HMRC that you have a tax liability?
Investigations: the presumption of continuity
What is the Presumption of Continuity? When does it apply?
How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?