Receiving a discovery assessment can come as a shock.
You may believe that the tax year ended long ago. You may also have filed a return and heard nothing further from HMRC. Then, unexpectedly, HMRC sends a formal assessment for additional tax.
However, HMRC cannot reopen every tax year simply because it now takes a different view.
The law allows HMRC to make a discovery assessment when an officer discovers a loss of tax. If the taxpayer filed a return, additional legal safeguards usually apply.
Therefore, anyone who receives an assessment should check more than the calculation. They should also ask whether HMRC had the legal right to issue it and whether it acted within the relevant time limit.
What Is a Discovery Assessment?
A discovery assessment is a formal assessment that HMRC makes when it believes tax has been lost.
For Income Tax and Capital Gains Tax, section 29 of the Taxes Management Act 1970 gives HMRC this power.
HMRC may make an assessment if an officer discovers that:
- income or capital gains that should have been assessed were not assessed;
- an existing assessment was too low;
- a taxpayer received too much tax relief; or
- HMRC repaid tax that it should not have repaid.
HMRC assesses the additional amount that it believes will correct the loss of tax.
In simple terms, HMRC is saying:
“We now believe that this tax year contains an unpaid amount, so we are formally assessing it.”
However, HMRC must have a reasonable basis for its conclusion. A discovery assessment should not rest on guesswork alone.
Is a Discovery Assessment the Same as a Tax Enquiry?
No. An enquiry and a discovery assessment are different procedures.
HMRC normally has a limited period in which it can open an enquiry into a Self Assessment return. For a return filed on time, the enquiry window will usually end 12 months after HMRC receives the return. Different rules can apply to late returns and amended returns.
During an enquiry, HMRC may request records, ask questions and examine the accuracy of the return. It will normally close the enquiry by issuing a closure notice.
A discovery assessment may arise after the normal enquiry window has closed. It allows HMRC to assess an earlier year, but only if it meets the conditions in the legislation.
| HMRC action | What it generally means |
| Compliance check or enquiry | HMRC is examining a return or tax position |
| Discovery assessment | HMRC formally assesses tax that it believes was lost |
| Determination | HMRC estimates tax where a required return has not been filed |
| Closure notice | HMRC formally completes an enquiry and may amend the return |
| Penalty assessment | HMRC separately charges a penalty for a failure or inaccuracy |
These actions can sometimes appear in the same case. For example, HMRC may issue a discovery assessment for unpaid tax and then consider a separate penalty.
When Can HMRC Make a Discovery Assessment?
Where the taxpayer did not file a return, HMRC may make an assessment if it discovers a loss of tax and remains within the correct time limit.
However, the position becomes more restricted when the taxpayer filed a return for the year.
In that situation, HMRC will generally need to show at least one of the following:
- The taxpayer, or someone acting for them, brought about the loss of tax carelessly or deliberately; or
- When the enquiry window closed—or when HMRC completed an enquiry—the information available would not have made a hypothetical HMRC officer reasonably aware of the tax loss.
This second condition often becomes known as the “insufficient information” condition.
Therefore, the key questions often include:
- What did the tax return say?
- What additional information accompanied it?
- Did the taxpayer explain any unusual treatment?
- Could HMRC reasonably identify the tax problem from the information supplied?
- Did careless or deliberate conduct bring about the loss?
The answer depends on the full facts, not simply on whether HMRC held a particular document somewhere within its systems.
What Counts as Information Made Available to HMRC?
For discovery assessment purposes, the law treats certain information as available to HMRC.
This may include information:
- entered in the relevant tax return;
- included in accounts, statements or documents supplied with the return;
- contained in a claim;
- supplied during an enquiry;
- notified to HMRC in writing; or
- which HMRC could reasonably infer from that information.
The rules can also take account of information in returns or claims for the two preceding tax years in certain circumstances.
However, simply sending HMRC a large bundle of records may not provide full protection. Important information should appear clearly enough for an officer to understand its relevance.
For example, suppose a taxpayer used a tax treatment that involved genuine uncertainty. If the return and its supporting explanation clearly identified the facts and treatment, HMRC may find it harder to argue later that the information did not reveal the position.
By contrast, a vague entry or an unexplained figure may not give HMRC enough information to identify the tax loss.
Can HMRC Make an Assessment Just Because It Changed Its Mind?
Not necessarily.
A discovery assessment should not allow HMRC to reopen a settled year simply because another officer takes a different view of the same information.
If the taxpayer fully disclosed the relevant facts, used the generally accepted practice at the time and did not act carelessly or deliberately, HMRC may face legal restrictions after the enquiry window closes.
In addition, section 29 includes protection where the loss arose from an error about the basis used to calculate the liability and that basis followed the generally prevailing practice when the taxpayer filed the return.
However, disputes in this area can become technical. A fresh conclusion may count as a valid discovery in some circumstances, while the separate statutory safeguards may still prevent HMRC from assessing the tax.
Therefore, “HMRC already knew” is not always enough on its own. The case requires a careful review of what HMRC knew, when it knew it and what a hypothetical officer could reasonably have understood.
How Far Back Can HMRC Go?
The time limit depends mainly on what caused the tax loss.
For Income Tax and Capital Gains Tax, the main assessment periods are usually:
| Circumstances | Usual assessment time limit |
| Normal case, with no careless or deliberate conduct | 4 years |
| Tax loss caused by careless conduct | 6 years |
| Certain offshore matters or offshore transfers | 12 years |
| Tax loss caused deliberately | 20 years |
| Failure to notify HMRC of chargeability | Potentially 20 years |
HMRC generally calculates these periods from the end of the relevant tax year.
For example, the four-year time limit for the tax year ending 5 April 2023 would generally expire on 5 April 2027.
However, extended time limits contain detailed conditions. The fact that income came from abroad does not automatically settle which period applies. Similarly, HMRC cannot simply describe an error as careless or deliberate without evidence.
The Four-Year Time Limit
The normal time limit is four years from the end of the relevant tax year.
This period may apply where HMRC discovers an underpayment but the taxpayer took reasonable care and no longer time limit applies.
The Six-Year Time Limit
HMRC may have six years where careless conduct caused the tax loss.
Carelessness generally means failing to take reasonable care. What counts as reasonable depends on the person’s circumstances, knowledge and experience.
For example, HMRC may allege carelessness where someone entered figures without checking available records or ignored clear professional advice.
However, making an error does not automatically prove carelessness.
The Twelve-Year Offshore Time Limit
A 12-year time limit can apply to Income Tax, Capital Gains Tax and Inheritance Tax involving certain offshore matters or transfers.
For Income Tax and Capital Gains Tax, the detailed rules differ according to the tax year and circumstances. Exceptions may also apply where HMRC received relevant overseas information early enough to assess within the shorter period.
Therefore, any 12-year offshore assessment requires a careful review. The word “offshore” should not end the legal analysis.
The Twenty-Year Time Limit
HMRC may assess up to 20 years where, among other situations:
- deliberate conduct brought about the tax loss; or
- the taxpayer failed to notify HMRC that they had become chargeable to tax.
Deliberate conduct means more than making a careless mistake. HMRC will normally need to show that the person knowingly or intentionally did—or failed to do—something that resulted in the tax loss.
For example, knowingly leaving taxable rental income out of a return may lead to an allegation of deliberate conduct.
However, the facts matter. HMRC must support its allegation, especially where it relies on the extended 20-year limit.
What Can Lead to a Discovery Assessment?
A discovery assessment may arise when HMRC receives or identifies new information.
Common examples include:
- undeclared rental income;
- omitted self-employment profits;
- bank interest missing from a tax return;
- an unreported property disposal;
- excessive expenses or tax relief;
- overseas income or gains;
- pension income omitted from the return;
- information received from a third party;
- differences between a tax return and banking records; or
- information found during a check into another year.
HMRC also receives financial information from UK and overseas sources. However, the existence of a difference does not automatically prove that tax is due.
A bank receipt, for example, could represent income. Alternatively, it might represent a loan, transfer, gift, inheritance or repayment.
Therefore, the taxpayer should establish the nature of each disputed item and provide evidence where possible.
Our guide to the evidence HMRC may use during a tax investigation explains the wider sources that HMRC may consider.
Does a Discovery Assessment Mean HMRC Thinks You Committed Fraud?
No.
HMRC can issue a discovery assessment without alleging fraud or deliberate tax evasion.
For example, the assessment might relate to:
- a genuine mistake;
- a careless error;
- a technical disagreement;
- information that HMRC could not reasonably identify from the return; or
- income that the taxpayer failed to report because they misunderstood the rules.
However, HMRC’s view of the taxpayer’s behaviour matters because it can affect both the assessment period and any penalties.
Therefore, check the wording carefully. If HMRC relies on a six- or 20-year time limit, ask what behaviour it alleges and what evidence supports that view.
Are Penalties Automatically Included?
No. Additional tax, interest and penalties are separate matters.
A discovery assessment establishes the extra tax that HMRC believes is due. HMRC may also charge interest on late-paid tax.
It may then consider a separate penalty if an inaccurate return, failure to notify or another tax failure caused the loss.
Penalty levels can depend on:
- whether the conduct was careless or deliberate;
- whether the taxpayer concealed the problem;
- whether the disclosure was prompted or unprompted;
- the quality of the taxpayer’s disclosure; and
- whether offshore rules apply.
A successful challenge to HMRC’s behaviour finding could affect the assessment time limit as well as the penalty position.
Can You Appeal a Discovery Assessment?
Yes. A taxpayer can normally appeal against a discovery assessment.
The usual appeal deadline is 30 days from the date HMRC issues the notice.
The appeal should explain the grounds of disagreement. Depending on the case, those grounds may include:
- HMRC calculated the income or gain incorrectly;
- the amount was not taxable;
- HMRC overlooked allowable costs or relief;
- HMRC acted outside the statutory time limit;
- the loss did not result from careless or deliberate conduct;
- HMRC already had enough information to identify the position;
- the assessment represents an unsupported estimate; or
- the discovery conditions were not met.
If you miss the deadline, you may still make a late appeal. However, you should explain the delay. HMRC may accept it, or the First-tier Tribunal may give permission in appropriate circumstances.
Importantly, submitting an appeal does not always postpone collection automatically. If you dispute the amount, you may also need to apply to postpone the disputed tax while HMRC considers the appeal.
Interest may continue to arise if the tax ultimately remains payable.
Should You Pay the Assessment While Challenging It?
This depends on the facts and your financial position.
You may decide to pay the amount to stop further interest while continuing the appeal. If you succeed, HMRC should repay the relevant amount with any repayment interest that applies.
Alternatively, you may ask HMRC to postpone the disputed tax. However, you should pay any part that you agree is due.
Do not assume that an appeal has automatically stopped recovery action. Check the assessment, appeal and postponement position promptly.
Practical Guide: What to Do After Receiving an Assessment
1. Record the deadline
Check the date on the assessment and calculate the 30-day appeal period immediately.
2. Identify the tax year and tax involved
Confirm whether HMRC is assessing Income Tax, Capital Gains Tax or another liability.
3. Ask why HMRC issued it
HMRC should explain the tax loss, its calculation, the discovery condition and the time limit on which it relies.
4. Review the original return
Compare the assessment with the return, accounts, additional information and documents supplied to HMRC.
5. Check HMRC’s calculation
Reconcile each figure. Look for duplicated income, missing expenses, incorrect dates and estimates.
6. Examine the time limit
Decide whether HMRC is relying on the four-, six-, 12- or 20-year period. Then check whether the evidence supports that period.
7. Review the behaviour allegation
Do not accept a description of conduct as careless or deliberate without considering the facts.
8. Preserve the evidence
Keep tax returns, computations, accounts, bank records, contracts, correspondence and professional advice.
9. Appeal in writing where necessary
Do not allow the 30-day deadline to pass while waiting for every document. You can lodge a protective appeal and provide further details later where appropriate.
10. Consider payment or postponement
Pay any undisputed amount and deal separately with the disputed tax.
Frequently Asked Questions
Can HMRC issue a discovery assessment after the enquiry window has closed?
Yes, but HMRC must meet the discovery assessment rules. Where the taxpayer filed a return, HMRC will normally need to show careless or deliberate conduct, or that the information available did not make the tax loss reasonably apparent.
Can HMRC go back 20 years for every mistake?
No. The 20-year period applies only in specified circumstances, including deliberate conduct and certain failures to notify chargeability. Ordinary errors do not automatically give HMRC 20 years.
What does “careless” mean?
Broadly, careless conduct means failing to take reasonable care. However, HMRC should consider the person’s abilities and circumstances. A simple mistake does not always amount to carelessness.
Does overseas income always create a 12-year time limit?
No. Detailed conditions and exceptions apply. The rules also differ according to the tax year and tax involved. Therefore, HMRC must do more than show that the matter has an overseas connection.
Can HMRC estimate the amount?
HMRC may make a reasonable assessment based on the information available. However, the assessment should reflect its honest and reasonable judgement. The taxpayer can challenge an excessive or unsupported figure.
Does appealing stop HMRC from collecting the tax?
Not necessarily. A taxpayer may need to apply separately to postpone the disputed amount. Any part that is not under appeal will normally remain payable.
Can HMRC charge a penalty as well?
Yes, but the penalty is separate from the discovery assessment. HMRC must apply the relevant penalty rules and consider the taxpayer’s behaviour and disclosure.
What happens if I missed the 30-day appeal deadline?
You may ask HMRC to accept a late appeal and explain the delay. If HMRC refuses, you may be able to ask the First-tier Tribunal for permission. Act as soon as possible because further delay can make acceptance less likely.
Where to Find Official HMRC Information
Current official sources include:
- HMRC Enquiry Manual: discovery legislation and time limits, explaining HMRC’s interpretation of discovery and the four-, six-, 12- and 20-year time limits.
- HMRC Self Assessment Legal Framework: discovery assessments, covering the conditions that apply when a taxpayer has already filed a return.
- HMRC Compliance Handbook: 12-year offshore assessment period, explaining the extended limit for certain offshore matters and transfers.
- Taxes Management Act 1970, including sections 29, 34 and 36.
- HMRC guidance on tax appeals, covering appeals, reviews and applications to the tax tribunal.
The correct rules depend on the type of tax, tax year and circumstances. Therefore, seek advice promptly if HMRC has assessed an older period or alleged careless or deliberate conduct.
💡 Key Takeaway
A discovery assessment allows HMRC to recover tax that it believes was lost in an earlier year. However, HMRC does not have an unlimited right to reopen settled tax returns.
It must meet the legal conditions, use the correct assessment period and calculate the tax on a reasonable basis.
The most important first step is to check the appeal deadline. Then review the figures, information previously supplied to HMRC, relevant time limit and any allegation of careless or deliberate conduct.
An assessment is a formal decision—but it is not necessarily the final word.
Need Help?
If HMRC has issued a discovery assessment, Accounts Tax Group can review the assessment, calculation and statutory time limit.
We can examine what information HMRC already held, consider any allegation of careless or deliberate conduct and prepare an appeal where appropriate. We can also help you address related penalties, interest and payment issues.
Contact us as soon as possible after receiving the notice, particularly if the 30-day appeal deadline is approaching.
For further practical guidance, explore our HMRC Insights and Updates.
For regular updates, you can follow our company page on LinkedIn, or explore our in-depth visual guides shared via our director’s profile.
