Errors and Assessments: Officer assessments - time limits
You should notify assessments as quickly as possible. But there may be occasions when you have to weigh up the good practice of notifying assessments quickly against the possibility of allowing a business to send detailed arithmetical workings or representations about a matter of liability or other policy. Clearly we should allow businesses time to make representations or send figures, but you must be careful not to allow unduly lengthy delays.
There are, in effect, two sets of legal time limits about the making of assessments. These time limits cover:
- how soon an assessment has to be notified once the facts needed to notify an assessment are available; and
- what period of time an assessment may cover.
Most officer assessments are made within the One Year Rule described at Finance Act 2001 Schedule 5 para 4(2). The Two Year Rule described at Schedule 5 para 4(1)(a) is an alternative to the One Year Rule and applies only if more than one year has passed since evidence of facts came to knowledge. Overall, this means any assessment, except in para 4(3) cases below, cannot be made more than four years after the end of an accounting period as described in Schedule 5 para 4(1)(b) i.e. the four year time limit applies together with the One Year Rule.
Schedule 5 para (3)(1) allows us to notify more than one assessment for any period, so that if we issue one assessment and later find new evidence it should have been higher we can notify a second assessment for the same period. This also allows an officer’s assessment to be issued to increase a central assessment.
Schedule 5 para 4 (3) extends the time limit in cases of fraud, late registration, or evasion (dishonest conduct) to twenty years.
Note: the twenty years extension will only apply to assessments notified within the One Year Rule.
Further guidance can be found in Notice 915 (HMRC website) - Assessments and Time Limits: Statement of Practice.
What the time limits mean
The time limits, which cover how soon assessments should be notified and what periods they can cover, work together.
There are two possibilities, depending on how soon an assessment is notified. (The law talks in terms of assessments “made”. For practical purposes this guidance uses the term “notified”, meaning that the assessment is sent to the business concerned.) These possibilities are as follows:
|Assessment notified within…||Assessment may cover up to…|
|one year, no fraud etc||four years|
|one year, fraud etc has taken place||twenty years|
|two years but later than one year, no fraud etc||three years|
|two years but later than one year, fraud has taken place||three years|
So to protect the revenue as fully as possible, assessments should, as a matter of course, be notified as quickly as possible and certainly within one year.
It will be clear that the greater the time taken to notify an assessment the greater is the risk of periods, which are almost four years old already at the time of the visit, going “out of time” and beyond the scope of our power to assess. The one year limit should therefore be regarded as an absolute maximum, and the issue of assessments should always be treated - subject to the need to obtain confirmation of the facts and figures - as a priority. This reduces the possibility of criticism for delay being levelled at you by the business.
Where a visit results in two or more lines of enquiry a separate assessment should be issued in respect of each line of enquiry once consideration of that point is complete. Do not wait to send an assessment for “problem A” until you have also resolved “problem B” if it will compromise the time limits criteria.