Discovery Assessments
TMA70 S29
FA98 SCH18 PARA 41
Summary
HMRC can make a discovery assessment if it is discovered that:
- there is tax which ought to have been assessed but has not been assessed, or an assessment is or has become insufficient, or any relief that has been given is or has become excessive.
- the return was not made in accordance with prevailing practice
and
either
the further tax that is due arises from the fraudulent or negligent conduct of the taxpayer, or a person acting on his or her behalf
or
the officer could not have been reasonably expected, on the basis of the information made available to him or her, to be aware of the underassessment when the enquiry window closed or a completion notice was issued.
Meaning of Discover
Discover has been found by the Courts to mean “find out” and in the case of Langham v Veltema the Court of Appeal said,
“It seems to me that the key to the scheme is that the Inspector is to be shut out from making a discovery assessment under the section only when the taxpayer or his representatives, in making an honest and accurate return or in responding to a section 9A enquiry, have clearly alerted him to the insufficiency of the assessment in question.”
The HMRC Enquiry Manual at EM 3251 et seq gives the Department’s view.
Time Limits
The time limits for a discovery assessment on the basis of negligence or fraud are
- for income tax, PAYE and CGT 20 years after the 31 January following the year of assessment
- for corporation tax 21 years after the end of the accounting period.
Where there has not been negligence or fraud the time limits are
- for income tax, PAYE and CGT 20 years after the 31 January following the year of assessment
- for corporation tax 6 years after the end of the accounting period
However on 1 April 2010 the assessing time limits will change and for Income Tax, PAYE, Capital Gains Tax, Corporation Tax and VAT they will be
- four years - normal time limit
- six years - careless error (except for VAT which is 4 years)
- 20 years - deliberate error, failure to register for VAT, failure to notify chargeability to tax, failure to notify tax avoidance schemes.
The new time limits apply from the end of the accounting period or tax year.
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