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HMRC internal manual

Enquiry Manual

Working the enquiry: reviewing earlier years: private use adjustments

The re-opening of earlier years’ to adjust private proportions can meet with considerable resistance. This will be heightened with interest or if penalties are charged on the additional duty. The principles underlying any decision to re-open for private adjustments are the same as for any other understatement.

You should never re-open earlier years to charge tax and interest and penalties solely to improve the class of settlement if the facts do not call for such action to be taken. What you must decide is whether you have grounds for a discovery, EM3250+, whether the understatement was culpable and how does the size of the understatement fit with the guidelines EM2002.

If there has been misstatement or concealment of facts so that the true position could not have been known, you should re-open, if otherwise appropriate.

If private use adjustments change because of a reconsideration of the same facts it will not be appropriate to re-open earlier years. Some will have been settled originally through correspondence but will be re-examined in more depth during meetings. This will often result in minor changes, say 10 per cent increased to 20 per cent. Even if you have discovered culpable understatements of profits, you should not scale-back such minor adjustments.