Assessing: CTSA assessments: discovery assessments
This subject is presented as follows
In what circumstances can you make a discovery assessment?
You can make a discovery assessment to make good any loss of tax to the Crown, if you discover:
- an amount which ought to have been assessed to tax has not been assessed
- an assessment to tax is or has become insufficient
- relief has been given which is or has become excessive.
A discovery assessment is only appropriate when a ‘discovery’ leads to additional tax liability on the company for that AP. It is a separate charge from the return and not an amendment to it.
In law, you may only use this power where the company has not delivered a return or has delivered a return and:
- there has been fraudulent or negligent conduct or
- HM Revenue & Customs could not have been reasonably expected to be aware of the loss of tax from the information made available in the return or in related documents.
Additionally, the Company Taxation manual tells you not to make a discovery assessment in the following circumstances.
- The company has made a return for the relevant period and you can pursue the discovery by opening an enquiry into the return.
- The company has received a notice requiring it to deliver a return but it has not made a return for the relevant period and you are still in time to make a revenue determination for that period.
When considering the time limit for making a Discovery Assessment there is no link between any enquiry period and the period of assessment. The link is with the date on which you are making the assessment and the period of assessment.
You can make a discovery assessment:
- 4 years from the end of the AP in which the further liability to tax arises where the loss of tax is not due to careless or deliberate behaviour
- 6 years from the end of the AP in which the further liability to tax arises where the loss of tax is due to careless behaviour of the company or agent
- 20 years from the end of the AP in which the further liability to tax arises where the loss of tax is due to deliberate behaviour of the company or agent.
Example (where the AP end date is unchanged):
In this example the AP end date is always 30 June. If when making the discovery assessment you are in the AP end 30 June 2018 you can make a discovery assessment for years back to and including AP end 30 June 2014 if not due to careless or deliberate behaviour (4 years), AP end 30 June 2012 if due to careless behaviour of the company or agent (6 years), or 30 June 1998 if due to deliberate behaviour of the company or agent (20 years).
Example (where the AP end date has changed):
In this example the original AP end is 30 June and a discovery assessment is being considered in the AP end period 30 June 2018. However, since then the AP end date has changed and later APs now end on 31 January. In this case ignore the new 31 January AP end date and apply the original AP end date of 30 June to calculate how far back the discovery assessment can be applied. Therefore, the earliest a discovery assessment could be considered for a (not due to careless or deliberate behaviour case) is 30 June 2014 (4 years) or 30 June 2012 (6 years) for a (careless behaviour of the company or agent case) or 30 June 1998 (20 years) for a (deliberate behaviour of the company or agent case).
For further information, refer to the Compliance Handbook at CH56200 onwards.
The company can appeal against a discovery assessment. The appeal must be:
- in writing
- within 30 days after the notice of assessment was issued
- to the officer of the Board by whom the notice of assessment was issued.
Once you issue a notice of assessment you cannot alter it, except in accordance with the express provisions of the Taxes Acts.
Legal background and guidance
For further information on the detailed legal background to discovery, see the Company Taxation Manual (CTM) at CTM95030 onwards. In particular, see CTM95060 which explains the restrictions on the power to make discovery assessments and CTM95050 which tells you when you cannot make a discovery assessment.
A discovery assessment is issued when a discovery leads to additional tax liability on the company for that AP. It is a separate charge from the return and is not an amendment to it.
Before June 2003, COTAX did not deal correctly with discovery assessments. It incorrectly showed a discovery assessment issued before that date as if it were an amendment to any charge already on the record, such as a revenue determination or self assessment.
After June 2003, COTAX correctly treats a discovery assessment as a separate charge. It also lets you record more than one discovery assessment on an AP if that is necessary. For example, you may find that insufficient profits have been brought into charge and issue a discovery assessment to make good the loss of tax on that source of income. If you subsequently discover that a Section 455 CTA 2010 charge has not been assessed and there is no appeal against the original discovery assessment, you are not entitled to amend it. You therefore need to issue a separate discovery assessment for the newly discovered charge. You can access each assessment for amendment if required.
Because COTAX treats a discovery assessment as a completely separate charge from any other on the AP, you need to enter all the relevant figures for the AP, including those figures already included in the self assessment, or any amendment to it, to enable COTAX to calculate the correct amount of tax. To ensure that you charge only the additional tax due, you must enter as a ‘non-standard reduction’ all tax charged by other assessments.
You must also issue a letter to the company or its agent to explain the form of the assessment. Your letter should reconcile the amount now charged with what was charged before and make it clear that the discovery is the further amount of tax charged. Explaining the situation fully at this stage will avoid any later misunderstanding and prevent spurious appeals.
If the company appeals a discovery assessment and refers it to the Tribunal, your letter of explanation forms part of the appeal evidence. It is important to show that you have already taken care to explain the underlying issues clearly to inform and satisfy the Tribunal.
If, exceptionally, you use function RAMA (Record / Amend Assessment) to try to access an AP on which a discovery assessment was issued before the June 2003 software changes, you will see the error message ‘(This content has been withheld because of exemptions in the Freedom of Information Act 2000) Discovery asst made before June 03’. (This content has been withheld because of exemptions in the Freedom of Information Act 2000) (This content has been withheld because of exemptions in the Freedom of Information Act 2000) They will arrange to correct the COTAX record so you can make the amendments you require.
See COM23071 for further information.
Function RAMA (Record / Amend Assessment)
You can use function RAMA (Record / Amend Assessment) to make or amend a discovery assessment for an AP not under enquiry and with no informal discharge present on it.
When you select the ‘prepare or amend a discovery assessment’ option, COTAX displays the advisory message:
- ‘You have chosen to prepare a main discovery assessment. Could you open an enquiry or prepare a revenue determination instead?’
You should not make a discovery assessment if you are still in time to open an enquiry where a return has been delivered, or make a revenue determination in the absence of a return.
When you have used function RAMA to make a discovery assessment you cannot alter it before it is issued, or stop its issue.