HMRC Discovery Assessment: Time Limits and Right of Appeal
An HMRC discovery assessment is an assessment to income tax or capital gains tax made under section 29 of the Taxes Management Act 1970 (TMA 1970), where HMRC concludes that tax has been under-assessed. It may relate to a year for which a return has already been filed and the enquiry window has closed. A discovery assessment carries a statutory right of appeal and is subject to fixed time limits.
1. What a discovery assessment is
Under section 29(1) TMA 1970, an officer of HMRC may make an assessment where it is discovered, as regards any person and any year of assessment, that:
income or chargeable gains which ought to have been assessed have not been assessed;
an assessment to tax is or has become insufficient; or
any relief which has been given is or has become excessive.
The assessment is made in the amount, or further amount, which in the officer's opinion ought to be charged to make good the loss of tax.
2. Conditions where a return has been filed
Where the taxpayer has delivered a Self Assessment return for the year, a discovery assessment may be made only if one of two conditions is met (section 29(3) TMA 1970):
Careless or deliberate conduct. The under-assessment was brought about carelessly or deliberately by the taxpayer or a person acting on the taxpayer's behalf (section 29(4)).
Insufficient disclosure. At the time HMRC ceased to be entitled to open an enquiry into the return, or completed an enquiry, an officer could not reasonably have been expected, on the basis of the information made available, to be aware of the under-assessment (section 29(5)).
Information made available includes the return and accompanying documents, information provided for the purposes of an enquiry, and information whose relevance could reasonably be expected to be inferred from those documents (section 29(6)).
No assessment may be made where the under-assessment results from a return made in accordance with the practice generally prevailing at the time (section 29(2)).
3. Time limits for an HMRC discovery assessment
The time limit for a discovery assessment depends on the conduct that brought about the loss of tax:
Circumstances | Time limit after the end of the tax year | Provision |
Ordinary case | 4 years | Section 34 TMA 1970 |
Loss brought about carelessly | 6 years | Section 36(1) TMA 1970 |
Loss brought about deliberately, or failure to notify chargeability | 20 years | Section 36(1A) TMA 1970 |
References to a loss brought about by the taxpayer include a loss brought about by another person acting on the taxpayer's behalf (section 36(1B)).
An assessment made outside the applicable time limit is invalid.
4. Appeal
Section 31 TMA 1970 confers a right of appeal against a discovery assessment. Section 31A prescribes the form and time limit of the notice of appeal. Section 49 governs notices of appeal given after the time limit.
5. Review and tribunal
Sections 49A to 49I TMA 1970 provide for the review of HMRC decisions under appeal and for the notification of appeals to the First-tier Tribunal.
6. Payment pending appeal
Section 55 TMA 1970 governs the payment of tax charged by an assessment while an appeal is pending, and the postponement of tax in dispute.
Key points
A discovery assessment is made under section 29 TMA 1970.
Where a return has been filed, the conditions in section 29(4) or 29(5) must be met.
The time limits are set by sections 34 and 36 TMA 1970: 4, 6 or 20 years after the end of the tax year.
Rights of appeal, review and postponement are governed by sections 31 to 55 TMA 1970.
Legislation referenced
Taxes Management Act 1970: sections 29, 31, 31A, 34, 36, 49, 49A to 49I, 55
