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HMRC internal manual

Claimant Compliance Manual

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HM Revenue & Customs
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Discovery Decisions: Example of reasonable grounds for believing

Lee and Marian claimed and were awarded tax credits for 2007/08. Marian is a self employed florist, and Lee stays at home to care for their two children. Marian files her SA return on 15 October 2008, and a minor enquiry into the return is opened on 27 November 2008 and closed on 12 February 2009.

In June 2009 the CCRO receives evidence which shows that Marian has not declared all her self employed profits for 2007/08. The SA enquiry window for 2007/08 has already closed (because an SA enquiry has already been opened and closed), but it may be possible to make a discovery decision to increase her self employed profits for 2007/08. The CCRO passes the case to the Small Business Team to make a discovery decision and a decision increasing her 2007/08 income tax liability is made on 17 October 2009.

The additional income for 2007/08 would, if taken into account for NTC, reduce the amount of tax credits due for that year. You therefore have reasonable grounds for making an NTC discovery decision, and you can do so from 18 October 2009, up until 17 October 2010. (If you have reasonable grounds for believing that there has been fraud or neglect, you would have until 5 April 2013 to make your discovery decision. See CCM13110.)

You make the NTC discovery decision on 1 November 2009. Marian appeals against the SA discovery assessment on 15 November 2009. The appeal has no impact on your NTC discovery decision - Marian will have to make a separate appeal against that if she does not agree with it.

The appeal against the SA discovery assessment is settled on 23 September 2010, resulting in the amount SA discovery assessment being reduced. Marian’s income tax liability has therefore been further revised, and you can make a further discovery decision to take account of the revision in NTC. You have from 24 September 2010 until 23 September 2011 (or until 5 April 2013 if you consider you can establish fraud or neglect) to make your revised discovery decision. Note that in this case your further discovery decision will have the effect of reducing the amount of the earlier discovery decision.

If the increase in Marian’s SA profits had made no difference to the entitlement to tax credits for 2007/08, you would not have had reasonable grounds for believing that the conclusive decision made for that year was not correct. In those circumstances you would not have been able to make a discovery decision, unless you were able to establish fraud or neglect. To do so, you would normally need to have reason to think that the entitlement or the amount of the award were incorrect on grounds other than income - for example, if the SA enquiry uncovered the fact that Marian did not work at least 16 hours a week.