HMRC Discovery Assessments

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:

1. The taxpayer has been careless: In this case, HMRC has up to 6 years to raise an assessment.
2. 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.
3. 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HMRC has made a discovery and issued an assessment for the same issue, it cannot issue another if the first one was withdrawn or deemed flawed.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:

1. Do not ignore it. Time limits apply to appeals.
2. Request full details. Understand who made the discovery, when, and why.
3. Check your records. Was the information already provided? Could HMRC reasonably have known about it?
4. Challenge assumptions. If HMRC alleges carelessness or deliberate behaviour, assess whether there’s actual evidence to support it.
5. 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.