One of the most uncomfortable surprises in UK tax is the discovery assessment — a letter that arrives years after a return was filed, asserting that additional tax is due for a closed year. Many directors assume that once the enquiry window has expired without challenge, a year is final. That is true for routine enquiries, but it is not true for discovery, which operates under a separate statutory framework.
The statutory basis
Discovery assessments for income tax and capital gains tax sit in section 29 of the Taxes Management Act 1970 (TMA 1970). Equivalent provisions apply to Corporation Tax (Schedule 18 FA 1998), VAT (s.73 VATA 1994), and other regimes. The principle is that HMRC can reopen a closed year if it "discovers" — meaning genuinely becomes newly aware — that tax has been understated and certain statutory conditions are met.
The four-year window
The standard time limit for a discovery assessment is four years from the end of the tax year (or accounting period for companies) to which it relates. So for a 2020/21 personal tax return, HMRC must issue any discovery assessment by 5 April 2025. After that date, the year is final unless the longer carelessness or deliberate windows apply.
The six-year window: carelessness
Where the loss of tax was brought about by "carelessness" on the part of the taxpayer or an agent acting on their behalf, the window extends to six years. Carelessness in this context is a failure to take reasonable care — not deliberate, but more than an honest mistake. A common example is an unrecorded source of income that a careful taxpayer would have noticed, or a relief claimed without verifying eligibility.
The twenty-year window: deliberate
Where the loss of tax was brought about deliberately, the window extends to a remarkable twenty years. The same applies in cases of failure to notify chargeability or failure to comply with certain disclosure regimes. Twenty years is long enough that records may no longer exist, witnesses may be unavailable, and reconstruction is extraordinarily difficult — which is precisely why HMRC reserves this for serious cases.
What "discovery" actually means
The case law on discovery is dense, but two principles are critical:
- The discovery must be genuine. An officer cannot simply re-read a return filed years earlier and decide it now looks wrong. The discovery must be triggered by new information, a new line of analysis, or a new technical understanding.
- For periods inside the original enquiry window, the "hypothetical officer" test applies. If a competent officer, with the information actually disclosed in the return and supporting documents, could reasonably have been expected to identify the issue, no discovery is permitted. This is the famous Langham v Veltema line of authority.
The white space disclosure
Strategic taxpayers and advisers make use of the "white space" on the return — the free-text box — to disclose unusual or potentially contentious treatments. A clear white space disclosure starts the enquiry clock running and, critically, makes it much harder for HMRC to later argue that a discovery was justified. This is a routine feature of our self assessment work for clients with complex affairs.
Conditions for assessment within the windows
Even within the four-, six-, or twenty-year window, HMRC must satisfy one of two further conditions (under s.29(4) or s.29(5)):
- s.29(4): the loss of tax was brought about carelessly or deliberately. This route is necessary for the six- and twenty-year windows in any event.
- s.29(5): at the time the original enquiry window closed, the officer could not reasonably have been aware of the situation on the basis of information then available.
Appeals
A discovery assessment can be appealed within 30 days. The grounds typically attack one or more of: (a) the genuineness of the discovery; (b) the satisfaction of s.29(4) or (5); (c) the existence of carelessness or deliberation; (d) the quantum. Many discovery assessments are reduced or discharged on appeal, particularly where the original return contained sufficient disclosure to bring the matter within the hypothetical officer's awareness.
What this means for current planning
- Keep records for at least six years for individuals and companies; consider longer (twelve or more) for any year involving complex or potentially contentious transactions.
- Use the white space. Disclose anything unusual, anything where there is a genuine technical question, and anything where you have relied on a specific reading of legislation.
- Document advice. If you took advice on a position, keep the advice file. It supports both the carelessness defence and any reasonable-care argument.
- Review historic positions periodically. A year-five review of years three and four can identify potential issues while the original enquiry window is still live and before discovery comes into play.
This article is general information. If a discovery assessment has been received, professional advice should be sought before the 30-day appeal window expires. Our business advisory team can provide an initial confidential view. Reach us through the contact page or book a call for a 30-minute discussion.