Key defences against discovery assessments
11th July 2025
Posted in Articles by Andrew Marr
Generally, once the tax enquiry window has closed then a taxpayer is ‘safe’ from scrutiny from HMRC in respect of a particular tax year. For individuals, the closing of this window will generally be one year from the date that the tax return has been submitted but if it is submitted late (after 31 January following the 6 April to 5 April year of assessment) then the window runs to the anniversary of the next quarter date (with quarter dates being 31 January, 30 April, 31 July and 31 October).
Increasingly often, taxpayers will receive assessments outside of these normal windows which purport to use section 29 TMA 1970 as a ground for opening a late assessment. These are commonly known as ‘discovery assessments’. Before engaging in the technical detail of these assessments, taxpayers should not assume that HMRC are correct in making them. This is the most important initial thing to check.
Something needs to be found or ‘discovered’
On a fundamental point, HMRC needs to learn something about the return which a reasonable Inspector would not have known about within the enquiry period based on what has been submitted. They cannot just start asking questions because they fancy a dig around. Quite a few enquiries have been opened over the last 18 months on the basis that incorporations were undertaken following advice from Property 118 and other providers that HMRC has a problem with. Anecdotally, there have been quite a few assessments where the incorporations had nothing to do with Property 118 (or other specific providers) and yet the discovery assessments have somehow rumbled on and on. Arguably and depending on the circumstances, HMRC will not have made a valid discovery if it was based on a misunderstanding.
Time limit
Generally, even if the assessment is based on a genuine discovery, it can only be made within four years from the end of the tax year in question. This extends to six years if the taxpayer or someone acting on their behalf did not take reasonable care and was therefore careless, or in rare cases involving fraud or deliberate behaviour it can extend to 20 years. We have seen cases where HMRC has sought to rely on the six-year limit when there is a good argument that the taxpayer acted wholly reasonably and so did their advisors. HMRC should be able to demonstrate that the taxpayer’s behaviour was contrary to practices prevailing at the time that the return was submitted if they need to rely on the six-year time limit.
Forbes Dawson view
We have seen too many cases where taxpayers have dived straight into the technical details of HMRC’s assessment rather than challenging the basis for the assessment itself. These rules exist to provide taxpayers with certainty over their tax affairs after a certain time. There are also rules which stop taxpayers reclaiming overpaid tax after certain periods. We tend to adopt the following approach to dealing with discovery assessments:
1. What is the subject matter? Has HMRC discovered something new that a reasonable Inspector would not have known about within the enquiry window? If the answer is no, then it is probably not valid.
2. If there was a proper discovery, was it made within four years or is HMRC relying on a six-year time limit?
3. If a six-year time limit is being relied on, how reasonable was the behaviour of the taxpayer and his advisors? If it was a reasonable approach then the six-year deadline may not apply.
4. Is HMRC’s technical point reasonable? If it is easy to rebut then it may be worth diffusing the situation without a need to get into the question of whether the discovery has properly been made.
It is usually worth accepting the mechanism of an independent review when a discovery assessment is made because if points are made clearly, the assessment will often be overturned at this stage. Discovery assessments are becoming more and more prevalent as HMRC rushes to look into certain tax planning schemes, often years after they were implemented, but tax payers should stay calm and seek measured advice.
