EM3232 - Discovery: making a discovery - whether there is a discovery: making an assessment - qualifying conditions - careless or deliberate behaviour
Making an assessment
The HMRC officer who makes the discovery may then make an assessment. See SAM20061 for the assessment Action Guide.
The discovery provisions act as an additional qualifying condition for making an assessment. The assessing officer must first have discovered an insufficiency. This means that the assessing officer must first examine the evidence and reach the opinion, that is discover, that there is a loss of tax.
The officer must record when they reached their conclusion and the basis for that conclusion.
The officer who makes the decision to assess is considered to have made the assessment.
However, s113(1B) TMA 1970 allows the officer who has made the discovery and has decided to make an assessment and quantified the amount, to pass on the responsibility for completing the assessing procedure.
This means that once the decision to assess has been made, the assessing officer may instruct another officer to issue the notice of assessment.
Qualifying conditions
If the taxpayer has submitted a return, for a discovery assessment to be valid either s29(4) or s29(5) TMA 1970 must be satisfied, or Para 43 or 44 Sch 18 FA 1998 for an assessment on a company.
It is sufficient for only one of the conditions to be met when making an assessment, but if both conditions are met there is a stronger case for making the assessment.
If the taxpayer has not submitted a return, then neither of the conditions need to be met and the time limit to assess might be due to
failure to notify.
Careless or deliberate behaviour – s29(4), TMA70 and Para 43, Sch18, FA 1998
Where a loss of tax is brought about carelessly or deliberately, see EM3220, by the taxpayer or a person acting on their behalf, then the officer may make an assessment.
The Upper Tribunal in HMRC v John Hicks ([2020] UKUT 0012) approved the First-tier Tribunal’s definition of a person acting on behalf in the The Trustees of the Bessie Taube v HMRC ([2010] UKFTT 473) as
“…a person who takes steps that the taxpayer himself could take, or would otherwise be responsible for taking. Such steps will commonly include steps involving third parties, but will not necessarily do so. Examples would in our view include completing a return, filing a return, entering into correspondence with HMRC, providing documents and information to HMRC and seeking external advice as to the legal and tax position of the taxpayer. The person must represent, and not merely provide advice to, the taxpayer”.
For companies, the behaviours of carelessness and deliberate can be attributed to a person who was an employee of the company at the relevant time.
Whether or not a particular taxpayer can be said to have brought about a loss of tax carelessly depends upon a number of circumstances. These will include the particular facts of the case such as the size and importance of the matter concerned, the nature of the underlying error, the advice the taxpayer did or didn't take, their own size, resources and capability to consider the issue, amongst other factors. HMRC should consider these various elements when forming a view on taxpayer behaviour.
The HMRC officer must be able to identify what behaviour they believe has brought about the loss, why they think it was careless or deliberate, and what evidence they have to support that conclusion.