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HMRC internal manual

Enquiry Manual

Working the enquiry: reviewing earlier years: concentrating adjustments in current year

It can be tempting to try to roll up preceding years’ adjustments in a global settlement for the year under enquiry. However, your aim should be to assess the correct amount of profits in the relevant year. Convenient as global adjustments may appear, the position for future years can be unclear and the taxpayer is not made properly aware of the consequences of his or her action. A one-year adjustment, albeit a large one, will not seem as serious as the reviewing of earlier years’ assessments, and more particularly the payment of interest and penalties.

Where it is appropriate, unless there is some exceptional reason, you should always reopen earlier years and seek penalties rather than agree a quick one year addition.

Certain understatements can lend themselves to the latter approach, such as the understatement of stock. The profit can be uplifted in the one year to cover the progressive understatement over a number of years. Such an approach should be resisted and the understatement scaled back on an appropriate basis and charged to tax and interest and penalties for each year.