Consider resisting six-year discovery assessments
10th April 2026
Posted in Articles by Andrew Marr
Anecdotally, we are aware of quite a few discovery assessments which are being raised by HMRC beyond four years after the end of the tax year to which the assessment relates. The default position is that HMRC must raise discovery assessments within four years of the end of the tax year for them to be valid. The time limit can be extended to six years if the taxpayer or a person acting on their behalf has been careless or negligent.
For example, users of the much-publicised Property 118 ‘Substantial Incorporation Structure’ have regularly been receiving discovery assessments between four and six years after the tax year in question. These have been issued on the basis that – according to HMRC – the advisers (here either Property 118 or Cotswold Barristers) had been careless or negligent. This raises the interesting question about whether a taxpayer can be treated as being careless or negligent based on the actions of their advisers.
Example
Ged seeks the advice of CIOT registered Excellent Tax Advisors Ltd. He responsibly researches the firm on the internet and even seeks references from existing clients which are all favourable. Unfortunately, the advisor that Ged ends up dealing with is going through a mental breakdown and his mind just isn’t on the job (unbeknownst to Ged). Einstein, the adviser, confidently tells Ged that he can benefit from full Principal Private Residence Relief (‘PPR’) on a rental property that Ged has never lived in. He explains that everyone can have at least one PPR, whether or not they live in it. This is completely wrong, but Ged is advised of this in writing, believes it and duly pays a sizable fee for the advice. The question is whether HMRC would be justified in raising a discovery assessment outside of four years in these circumstances.
Let us assume here that HMRC have genuinely ‘discovered’ the error in Ged’s tax return and that they could not have discerned this from the return (which is another requirement for there to be valid discovery). Let us also agree that Einstein has been careless and negligent here because, as a tax adviser, he really should have ensured that he knew what he was talking about before writing absolute drivel in his advice letter. The question is, therefore, whether HMRC can hang their hat on the fact that Einstein was acting on behalf of Ged.
Trustees of the Bessie Taube Trust v Revenue & Customs
A good summary of what was intended to be meant by ‘acting on behalf’ was included in the above First Tier Tribunal case:
In our view, the expression “person acting on…behalf” is not apt to describe a mere adviser who only provides advice to the taxpayer or to someone who is acting on the taxpayer’s behalf. In our judgement the expression connotes a person who takes steps the taxpayer himself could take or would otherwise be responsible for taking. Such steps will commonly include steps involving third parties but will not necessarily do so. Examples would in our view include completing a return, filing a return, entering into correspondence with HMRC, providing documents and information to HMRC and seeking external advice as to the legal and tax position of the taxpayer. The person must represent and not merely provide advice to the taxpayer.
In this context, Ged should arguably be seen as not acting carelessly on the basis that he sought what he had good reason to believe was good quality advice from a firm with a decent reputation. The question of whether Einstein was careless should, therefore, be academic. I would go even further than the above summary and argue that ‘acting on behalf’ was only included in the legislation so that the taxpayer could not argue that it was his wife (say) and not him who was careless in the completion of the return. In other words, it only related to delegated tasks.
Forbes Dawson view
This all seems to mean that HMRC should be restricted to a four-year discovery assessment window in cases where advice has been responsibly taken, however erroneous that advice turns out to be. Going back to the Property 118 cases, given the apparent number of impacted taxpayers, it must be likely that this issue has been or will be heard at tribunal. The outcome will likely rest on whether P118 and/or Cotswold Barristers can be seen to be acting on behalf of the taxpayers. For reasons outlined above this may be difficult for HMRC to justify and so they may have to fold on cases where discovery assessments were made outside four years.
Anybody who can relate to the example above should give serious consideration to appealing the discovery assessment on this basis. Although they could take the case to tribunal, they may well find that another case is heard before them on favourable grounds.
