Taxpayers and HMRC are bound by tax law. There are specific time limits that need to be observed. When an assessment is made outside of an enquiry window, it is necessary to consider if there has been a discovery. S.29 Taxes Management Act 1970 allows HMRC to raise discovery assessments where loss of income tax or capital gains tax is discovered. Similar provisions exist under separate legislation for corporation tax and inheritance tax.
Discovery assessments are designed to make good any loss of tax, if HMRC discovers:
- an amount which ought to have been assessed to tax has not been assessed;
- an assessment to tax is or has become insufficient;
- relief has been given which is or has become excessive.
When can discovery be claimed by HMRC?
There are two situations. Either there is:
- no Tax Return or
- there is a Tax Return but there has been careless or deliberate behaviour or HMRC could not have been reasonably expected to be aware of the loss of tax from the information made available in the return or in related documents.
Are there any safeguards?
Yes. Various time limits apply depending upon whether the taxpayer’s behaviour, namely:
- 4 years from the end of the Return period if the loss of tax was not due to a taxpayer behaviour being careless or deliberate;
- 6 years from the end of the Return period in which the further liability to tax arises where the loss of tax is due to careless behaviour of the taxpayer or agent;
- 20 years from the end of the Return period in which the further liability to tax arises where the loss of tax is due to deliberate behaviour of the taxpayer or agent.
So a taxpayer needs to understand which category they fall in. If in doubt, HMRC will tell you.
A taxpayer (or their agent) can appeal and separately postpone any tax demanded in discovery assessments in the normal way.
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