What is a discovery assessment?

Normally, once the enquiry window for a tax return has closed without HMRC opening a check, that return is treated as final. A discovery assessment is the exception: it lets HMRC go back and raise extra tax even after that window has shut, if it later discovers the return understated the liability.

It isn't a general licence to reopen settled years whenever HMRC feels like it. HMRC has to show it has genuinely discovered a loss of tax, and, in many cases, that the shortfall couldn't reasonably have been spotted from the information available on the return at the time it became final.

How far back the assessment can reach then depends on why the tax was lost: a modest window applies where reasonable care was taken, extending significantly for careless errors, and reaching much further back for deliberate conduct.

For Self Assessment, the power sits in section 29 Taxes Management Act 1970. It allows HMRC to assess additional tax where it discovers an under-assessment, subject to conditions that protect taxpayers whose returns were accurate on their face and where HMRC simply changes its mind later without new information.

A key protection is that, where the return was made in accordance with the prevailing practice at the time, or the under-assessment could reasonably have been identified by an officer reviewing the information provided, HMRC's discovery power is more limited. This stops HMRC using discovery as a way of reopening a case just because a different officer later takes a different view.

The time limits themselves flow from behaviour: reasonable care gives HMRC a shorter window measured in years from the end of the relevant tax year or accounting period, careless behaviour extends that considerably, and deliberate behaviour extends it furthest, reflecting how much harder deliberately hidden errors are to uncover.

Discovery assessments commonly surface after HMRC obtains new information, for example through data-sharing with banks, property registries or online marketplaces, that reveals income or gains not reflected in a return that had already gone unchallenged for years.

For companies, an equivalent discovery power lets HMRC assess additional Corporation Tax outside the normal enquiry window on similar principles. Directors should be aware that closing a company doesn't automatically prevent a discovery assessment; HMRC can still pursue the company, and in some circumstances the directors personally, after dissolution.

Because discovery relies on new information coming to light, keeping your own records and explanations from the time a return was filed is valuable if HMRC later tries to reopen it, since you may need to show the original position was reasonable given what was known then.

A discovery assessment can cover several years at once if HMRC concludes the same issue affected multiple periods, so the headline tax figure can be substantially larger than a single year's underpayment.

Interest runs from each year's original due date, and if a penalty applies, it's calculated on the combined tax lost across all the years covered, which can make the total bill considerably higher than the tax alone would suggest.

Growth plan clients have free tax investigation insurance included, which covers professional fees in responding to a discovery assessment as well as an ordinary enquiry — see /fees for the details.

Don't assume a discovery assessment is automatically valid just because it arrives. HMRC must satisfy the statutory conditions, and a poorly evidenced discovery can be successfully challenged.

Don't ignore the time limit question. Whether HMRC can reach back the number of years it claims often turns entirely on the behaviour category, which is itself open to challenge.

Don't confuse a discovery assessment with a routine enquiry closure notice. The rules, time limits and burden of proof differ, and treating them as the same thing can cost you a valid defence.