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HMRC internal manual

COTAX Manual

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Assessing: CTSA assessments: discovery determinations

This subject is presented as follows.

In what circumstances can you make a discovery determination?
Making a discovery determination
Example

In what circumstances can you make a discovery determination?

A discovery determination is a determination of an amount shown on a return. It can only be issued where a return has already been delivered and the time limit for opening an enquiry into the return has expired or the enquiry has already been completed.

You can make a discovery determination if you discover that an amount is incorrectly stated in a return and may affect the tax payable for another AP of the company or the tax liability of any AP of another company.

A discovery assessment is only appropriate when a discovery leads to additional tax liability on the company for that AP.

The rules for, and restrictions on, making discovery determinations are similar to those applying to discovery assessments.

In practice, where a return has been delivered and the time limit for opening an enquiry into that return has not yet expired, you normally deal with matters by opening an enquiry rather than issuing a discovery assessment or determination.

Where you need to make a discovery determination for a particular AP, you always need to consider what consequential action may be needed for another AP of the company, or an AP of another company.

Making a discovery determination

You cannot make a discovery determination using COTAX.

If you discover that an amount is incorrectly stated in a company’s return and it affects the tax payable for another AP of the company, or the tax liability of another company, make a discovery determination on the company by writing to it, setting out the amount which in your opinion ought to have been stated in the return.

If the discovery determination means that a return needs to be amended, or a discovery assessment made, for another AP of the company or an AP of another company, use function RAMA (Record / Amend Assessment) to amend or make a discovery assessment for the relevant AP. See COM23070 for more information.

Example

X Ltd delivers its return and self assessment for the AP ended 31 December 2013 by the filing date. The return shows the following entries.

Description Amount
   
Trading profits Nil
Tax payable (the amount of the self assessment) Nil
Losses of trades carried on wholly in the UK (arising) £10,000
Losses of trades carried on wholly in the UK (maximum available for surrender as group relief) £10,000

X Ltd carries back losses of £4,000 to its AP ended 31 December 2012. It also consents to the surrender of losses of £6,000 to Y Ltd, a grouped company, for the AP ended 31 December 2013.

In September 2016 you discover that X Ltd has unreported profits of £15,000 for its AP ended 31 December 2013. By then, the Para 24(2) time limit for opening an enquiry has expired.

Action - X Ltd

You make a discovery determination by writing to the company, setting out the amount which, in your opinion, ought to have been stated in the return. That is:

Description Amount
   
Losses of trades carried on wholly in the UK (arising) Nil
Losses of trades carried on wholly in the UK (maximum available for surrender as group relief) Nil

Subject to any appeal against the discovery determination, X Ltd is now obligated to write to both Y Ltd and HMRC, confirming that it has withdrawn its notice of consent to the surrender of losses. If X Ltd fails to do that, you may issue a direction to X Ltd that the original notice of consent to the surrender of losses of £6,000 to Y Ltd is ineffective. That direction is appealable. You must also send a copy of that direction to the claimant company Y Ltd.

You use function RAMA (Record / Amend Assessment) to make a discovery assessment for the AP ended 31 December 2013 in the amount which, in your opinion, ought to be charged to make good the loss of tax to the Crown. That is:

Description Amount
   
Trading profits £5,000
Tax payable (the amount of the self assessment) £500

You use function RAMA again to make a discovery assessment for the AP ended 31 December 2012 to recover excessive loss relief carried back of £4,000.

Action - Y Ltd

Y Ltd must amend its return for the AP ended 31 December 2013 if it can, so that it is consistent with the direction sent to X Ltd. However, it cannot do so as it is now September 2016 and the time limit for amendment was 31 December 2015.

You should therefore make an assessment to tax in the amount which you think ought to be charged to recover the excessive group relief. You cannot make this assessment in COTAX.

You must use a SEES assessment set to make the assessment manually. You can get the SEES 310(Z) assessment set at Excel > SEES > Forms and Letters > under the ‘SAFE’ category.

The particulars to enter on the assessment are ‘Paragraph 76 Schedule 18 Finance Act 1998 assessment to recover excessive group relief’. Show the tax as payable now.

Give your SAFE user the details of the assessment and ask them to raise the charge on SAFE using charge type ‘Tax on company - assessed’.

Use COTAX function NOTE to record details of the charge, including the date from which interest will run.

See:

  • COM23011 for a list of forms relevant to this subject
  • COM23012 for a list of functions to use in particular situations
  • COM23013 for legislation applying to this subject.