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HMRC internal manual

Enquiry Manual

Reopening Earlier Years: Discovery in SA Years: Statement of Practice 01/06

Following the decision of the Court of Appeal in Langham v Veltema, HMRC issued SP01/06.

The Statement of Practice outlines the circumstances in which HMRC might accept that the taxpayer has made sufficient disclosure to prevent a subsequent discovery assessment. Under the heading “discovery in practice” the statement says

“9. A taxpayer can further restrict the opportunity for discovery by providing enough information for an HMRC officer to realise within the enquiry period that the self assessment is insufficient. However taxpayers are encouraged to submit the minimum necessary to make disclosure of an insufficiency. The Veltema judgement does not require the provision of enough information to quantify the effect on the assessment. Information will not be treated as being made available where the total amount supplied is so extensive that an officer ‘could not have been reasonably expected to be aware’ of the significance of particular information and the officer’s attention has not been drawn to it by the taxpayer or taxpayer’s representative.

  1. HMRC recognises that a taxpayer, unless acting fraudulently or negligently, will consider his return to be correct and complete with no insufficiency. Most figures entered on a return will be absolute, however some will be open to interpretation or uncertain. In these circumstances, the taxpayer will have made a judgement as to the correct figure to enter. HMRC may regard this figure as insufficient. Where the taxpayer has fully alerted HMRC to the full circumstances of such an entry on the return, then the HMRC officer is in a position to determine whether or not there is an insufficiency, the conditions set by the Court of Appeal in Langham v Veltema have been met and the assessment will not be open to discovery on that point.”

The statement contains examples of common situations.

  • Valuation cases, such as Veltema
  • Cases involving other judgemental issues such as reserves, provisions and stock valuation that are routinely included in accounts, as well as some exceptional items such as capital/revenue expenditure in repairs, which require an element of judgement on the part of the taxpayer or representative
  • Cases where the taxpayer has, reasonably, adopted a different view of the law from that published as HMRC’s view.