After a self-assessment return has been filed, there is an ‘enquiry window’ (in most cases one year) during which HMRC may enquire into it. Once the enquiry window for a year has closed, HMRC may remedy any alleged deficiency in the self-assessment only by making a ‘discovery’ assessment. But unless the deficiency is attributable to the taxpayer’s carelessness (or worse) HMRC are not permitted to make such an assessment if, at the moment of closure of the enquiry window, HMRC ought reasonably to have been aware of the deficiency from information already provided to them by the taxpayer.
Absent carelessness, there are therefore obvious logical difficulties in making a discovery assessment at the time when the enquiry window remains open. These difficulties were recently explored by the First-tier Tribunal (‘FTT’) in Elaine Curtis v HMRC [2022] UKFTT 172 (TC).
As an aside, one might reasonably ask why HMRC would risk creating these difficulties for themselves. If the enquiry window is still open, the obvious course of action is to issue an enquiry notice in the normal way. But it appears that in Curtis, an HMRC project involved looking at the affairs of a number of taxpayers. For some of the taxpayers the enquiry window had closed, and for others it hadn’t; HMRC ‘considered that it was more efficient to issue discovery assessments to [all] the taxpayers involved.’
The Special Commissioners (predecessors to the FTT) held in 2008 that (absent carelessness) no discovery assessment may be made until after closure of the enquiry window. But in Timothy Norton v HMRC [2020] UKFTT 503 (TC) the FTT had (sort of) disagreed; a discovery assessment made within the enquiry window was, at the time of its making, neither unequivocally valid nor unequivocally invalid. Rather, ‘if a discovery assessment is made during the enquiry window or during an enquiry the consideration of the legality of the assessment must be postponed until the window or enquiry has closed.’
While ‘wait and see’ might famously have served the purposes of a beleaguered H H Asquith in 1910, it’s surely no basis on which to determine the validity of a tax assessment. We therefore welcome the recent decision in Curtis: absent carelessness, a discovery assessment cannot be made within the enquiry window.
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This article was republished in Tax Journal Issue 1586 and is also available on the Tax Journal website.
