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What Is an HMRC Discovery Assessment?
Under the UK’s self-assessment system, HMRC typically has one opportunity to inquire about a tax return. Once the enquiry window closes—usually 12 months after the return is filed—the taxpayer might assume the return is final. But HMRC has another tool in its arsenal: the discovery assessment.
A discovery assessment allows HMRC to reopen settled tax periods if they believe there has been an underpayment of tax. While this power is broad, it is not without limits—and many taxpayers are unaware that some discovery assessments can be successfully challenged or even deemed invalid.
When Can HMRC Make a Discovery Assessment?
A discovery assessment is triggered when an HMRC officer believes that tax has been underpaid. For the assessment to be valid, the officer must form a genuine and reasonable belief—not just a suspicion—that tax was not properly assessed in a return.
Three key scenarios allow for a discovery assessment:
- The taxpayer has been careless: In this case, HMRC has up to 6 years to raise an assessment.
- The underpayment was deliberate. If the taxpayer knowingly submitted incorrect information or failed to disclose relevant facts, HMRC can go back as far as 20 years.
- The underpayment wasn’t reasonably detectable from the available information: If, based on the return and any supporting documents, HMRC couldn’t have known there was an underpayment, they may reopen the return—regardless of the taxpayer’s behaviour—within 4 years.
Common Mistakes HMRC Makes
While discovery assessments are a powerful tool, they are often misused. Some common issues include:
1. Acting Without Proper Discovery
A discovery assessment needs solid evidence and a clear reason. HMRC cannot issue an assessment and then start an investigation later to support it.
2. ‘Just in Case’ Assessments
HMRC cannot create tax assessments just to protect its rights or extend deadlines. If the underpaid tax has not actually been found, those assessments are not valid.
3. Changing Tax Positions Retroactively
If HMRC changes its view on a tax treatment that was widely accepted at the time, it cannot retroactively assess tax unless the taxpayer acted carelessly or misled HMRC.
4. Issuing Duplicate or Multiple Assessments
Once HMRC has made a discovery and issued an assessment for the same issue, it cannot issue another if the first one was withdrawn or deemed flawed.
Who Must Make the Discovery?
Importantly, a discovery must be made by an actual HMRC officer—not a team or anonymous department. That officer must also raise the assessment. If there is no clear individual behind the discovery, it may be legally invalid.
How HMRC Gets It Wrong
In some cases, HMRC struggles to explain the basis of an assessment. For example:
- If they raise an assessment without linking unidentified receipts to any taxable income stream, the basis for taxation becomes unclear.
- In other cases, they might attempt to assess the same sum under two different taxes—say, both income tax and capital gains tax—which is impermissible.
- Excessive or unreasonable estimates of profits can also be challenged if they do not reflect the nature of the taxpayer’s business.
The Role of Behaviour and Time Limits
The length of time HMRC has to make a discovery assessment is directly linked to taxpayer behaviour. If the taxpayer acted with care, the window is short. If they were careless, it gets extended. And if deliberate behaviour is found, the timeline stretches to two decades.
However, behaviour must be evidenced and not assumed. Simply missing a return doesn’t necessarily mean deliberate action. HMRC must prove intent if they wish to rely on extended time limits.
The Imbalance of Power
While HMRC enjoys extensive powers under the discovery regime, taxpayers are more restricted. For example, a taxpayer who has overpaid tax generally only has up to 4 years to reclaim it and must meet strict criteria. This creates a noticeable imbalance, with HMRC able to act more freely than the individuals it regulates.
What You Can Do If You Receive a Discovery Assessment
If you are issued a discovery assessment:
- Do not ignore it. Time limits apply to appeals.
- Request full details. Understand who made the discovery, when, and why.
- Check your records. Was the information already provided? Could HMRC reasonably have known about it?
- Challenge assumptions. If HMRC alleges carelessness or deliberate behaviour, assess whether there’s actual evidence to support it.
- Seek expert help. Tax specialists can review the case and help you file an appeal or negotiate with HMRC.
Discovery assessments are powerful tools for HMRC, but they are not infallible. Many assessments can be challenged successfully if the correct procedures were not followed, if the discovery was weak or unreasonable, or if the timing rules were exceeded.
Knowing your rights and holding HMRC accountable to the same standards it demands of you is essential as a taxpayer. If you’re facing a discovery assessment, act quickly, gather evidence, and get support.
Need Help Responding to HMRC?
At Tax Accountant, we assist clients with discovery assessments, HMRC disputes, and tax appeals. If you’ve received a notice or want to check the validity of HMRC’s claims, we’re ready to help. Contact us today to protect your rights and get the clarity you need.
Your Questions - Our Answers
We are here to help you with any questions you may have
How do I appeal an HMRC discovery assessment?
If you disagree with a discovery assessment, you have 30 days from the date on the notice to lodge an appeal. First, write to HMRC’s address shown on the assessment, clearly stating “Notice of Appeal” and outlining the specific points you dispute (for example, the income figures or penalty).
You don’t need a lawyer, but set out your reasons crisply and include any supporting documents. Once HMRC receives your appeal, they’ll acknowledge it and may offer a review meeting. If that review doesn’t resolve things, you can escalate to the Tax Tribunal—again within the 30-day deadline. Missing the window can mean the assessment stands.
What penalties and interest will I face in a discovery assessment?
Alongside any unpaid tax, HMRC will charge interest from the original due date until you pay in full. Current rates for late payment run at the Bank of England base rate plus 2.5%.
On top of that, penalties depend on behaviour: if HMRC deems your error “careless,” expect up to a 15% penalty on the underpaid tax; “deliberate but disclosed” errors carry up to 30%; and “deliberate and concealed” can be 100% or more. Late payment penalties also apply if you miss instalments.
Always check your notice for the exact figures and deadlines to minimise extra costs.
Can I reduce penalties through a reasonable excuse or voluntary disclosure?
If you can show a genuine, unforeseeable event caused the mistake (for example, serious illness or fire destroying records), HMRC may waive or reduce penalties under a “reasonable excuse.” Alternatively, if you tell HMRC about an error before they discover it, that’s a “voluntary disclosure,” which typically attracts a lower penalty band (careless disclosure rather than deliberate).
To benefit, your disclosure must be complete and timely. In both cases, you’ll need evidence: medical letters, insurance reports, or correspondence. Our tax adviser can help package your submission to maximise the chance of relief.
How can I request full evidence and documentation from HMRC?
Under Code of Practice and common law, you’re entitled to see “the evidence” HMRC relied on to form their reasonable belief. To request it, write a formal letter quoting the “discovery assessment” reference and ask for all documents, data-matching records, third-party disclosures or analysis notes they used.
HMRC must provide enough detail so you can understand and challenge each point. If they refuse or send inadequate information, you can escalate via HMRC’s internal review process, then to the Adjudicator or the Tribunal. Having full disclosure is crucial to mount an effective appeal.
What records should I keep to defend against a discovery assessment?
To protect yourself, retain six years’ worth of all tax-related records: bank statements, invoices, receipts, payroll slips, contracts and correspondence with clients or HMRC. Keep digital backups in organised folders labelled by tax year. If you use cloud software, ensure you can export transaction logs.
For property or share disposals, keep title deeds, sale contracts and brokers’ statements. If you make a voluntary disclosure, having these documents ready will let you rebut HMRC’s figures quickly. Well-maintained records not only deter HMRC from pursuing questionable adjustments but also speed up any dispute resolution.
How does a discovery assessment affect my future tax affairs?
A raised discovery assessment can flag you as higher-risk for future HMRC compliance checks. You may face more frequent enquiries, tighter deadlines for returns and fewer chances to rectify errors informally. Penalties on assessments also count as “deliberate behaviour” in HMRC’s behaviour-based compliance checks, extending their windows for other years.
On the positive side, successfully challenging or settling an assessment—with payment plans or penalty reductions—demonstrates good faith and can help rebuild trust. After resolution, it’s wise to conduct an annual internal review or appoint an adviser to ensure all future filings are rock-solid.