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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Working the enquiry: reviewing earlier years: making discovery assessments

You should ensure that you raise discovery assessments at the appropriate time.

In a case where co-operation is poor you should do this at the earliest opportunity because an open appeal will give you more forcing action options. Even if you are anticipating settlement by way of letter of offer, this may not be the eventual outcome. It will in any case enable you to consider any postponement applications and the level of payment on account made EM1935+.

You should write to the taxpayer explaining briefly that an assessment is to be issued.

Similar considerations apply concerning earlier years which are in date and extended time limit assessments. There will be cases in which you are receiving full voluntary co-operation. The issue of a large number of estimated assessments could antagonise the taxpayer and prejudice that co-operation. It is a matter for your judgement to decide if and when it is appropriate to raise assessments for all the earlier years and you should, at the point the assessments are made, be able to demonstrate that

  • you have sufficient grounds for making a discovery EM3250+ and
  • that any reliance on the `presumption of continuity’ can be defended EM3309.

If the taxpayer is not co-operating, the arrival of earlier years’ estimated assessments can bring home the seriousness of the position, which often results in improved co-operation. It shows the taxpayer not only the possible liability which may be faced, but also that you are intent upon seeing the enquiry through to a conclusion involving earlier years. You should always raise earlier years’ assessments so that if the taxpayer notifies appeals to the tribunal, the tribunal is aware of the seriousness of the matter.

When a case comes before the tribunal you should at an early stage make sure that all assessments and determinations have been properly made for all years, including any necessary alternatives.

You should always send a letter slightly in advance of the actual making of the assessments warning the taxpayer and agent of what you are doing, as well as stating that the assessments are to `prevent the loss of tax’. In an enquiry case the authority for raising assessments are TMA70/S29 or FA98/SCH18/Para41. Assessments must be to the best of your judgment. Information on which to base a judgment may be severely limited, but care should be taken in arriving at a figure, which will ideally be neither too low nor indefensibly high. Assessments must not be inflated grossly to try and frighten the taxpayer into co-operating or settling. Such tactics can, anyway, be self-defeating if the appeals come before the tribunal. If your estimates are ludicrously high the credibility of HMRC’s case may be undermined. Your case will always be stronger if you can contend for confirmation of the amounts assessed rather than determination in lower figures.