Depending on circumstances, HMRC can raise an enquiry up to 20 years after a return is filed
Under section 9A of TMA 1970, HMRC holds the right to make formal ‘enquiry’ into every tax return submitted to them. The time limit for commencing an enquiry is 12 months after the day on which the return is carried out.
To organise their work within HMRC, they have historically referred to ‘full enquiries’ covering the return as a whole, and ‘aspect enquiries’ dealing with one or more matter(s).
The legislation does not, however, distinguish between different types of enquiry, therefore all enquiries into tax returns are legally enquiries into the full return, even if in practice HMRC only checks part of the return.
If HMRC identifies risks that relate to other taxes or duties, they might liaise with the relevant compliance officers responsible for that tax or duty. If they open a compliance check to address these risks, they usually work their enquiry in conjunction with them.
If HMRC makes no enquiries within the period allowed, or if they have completed an enquiry, the return becomes final unless
The legislation that gives the power to HMRC to make a discovery assessment is section 29 Tax Management Act (TMA) 1970.
HMRC cannot generally raise a discovery assessment if the taxpayer has filed a tax return unless HMRC has evidence to suggest that there is a loss of tax due to careless or deliberate errors (s 29(4)).
A discovery assessment can only be raised if
The only requirement appears to be that if a ‘new’ HMRC officer, acting honestly and reasonably, arrives at the conclusion that there was an insufficiency in an assessment of tax, a discovery assessment can be raised to recover the tax lost. Such a view of the provisions (of a hypothetical ‘new’ HMRC officer) is almost undefeatable and follows the Court of Appeal’s judgement in Langham v Veltema (2004).
In theory, discovery can be avoided by including suitable disclosures and making available all the relevant information in either the return and/or the ‘white space’.
Information is treated as having been made available to the officer if:
So, a change of opinion on information that has previously been made available to HMRC is not grounds for a discovery.
There is clearly an onus on the taxpayer to draw HMRC’s attention to any important information relevant to a tax liability, particularly if there is some doubt as to the interpretation that can be placed on that information. It is not sufficient just to provide that information if it is hidden away or obscure.
Section 34(1)
In any case of incomplete disclosure without careless or deliberate conduct, the time limit for a discovery assessment is not later than four years after the end of the tax year to which it relates.
Section 36(1) and (1A)
In any case involving a loss of tax brought about carelessly, the time limit for making a discovery assessment is not later than six years after the end of the tax year to which the assessment relates.
The time limit for making a discovery assessment is not later than 20 years after the end of the tax year to which it relates where the loss of tax is:
ACCA members are required to ensure that they observe their obligations in respect of their clients’ errors. Further guidance can be found at Professional Conduct in Relation to Taxation.