Received a discovery assessment? Here’s what you need to do next

Receiving a discovery assessment from HM Revenue & Customs (HMRC) can be unsettling. It means HMRC believes you underpaid tax in a previous year, even if you filed and had your return accepted. However, this does not automatically mean you owe money. You have rights and the ability to challenge HMRC’s claim. Acting promptly and strategically is key.
 

What is a discovery assessment?

Unlike standard tax enquiries, which are time-limited, discovery assessments allow HMRC to reopen past tax years if new information suggests an underpayment. HMRC may issue a discovery assessment if:

• It finds new financial information, such as undeclared offshore income or business profits
• It identifies errors or omissions in your tax return
• It believes you underreported or misrepresented your tax position

HMRC must justify its assessment—it cannot reopen a tax return arbitrarily.

Why have you received a discovery assessment?

The reasons for a discovery assessment vary, but the most common triggers include:

If HMRC’s claim is based on incorrect assumptions or missing context, you may have grounds to dispute it.

Can HMRC still assess you?

Discovery assessments are subject to strict time limits under the Taxes Management Act 1970, s29 – Discovery Assessments:

• 4 years – If the underpayment resulted even though you too reasonable care
• 6 years – If HMRC can show that the mistake careless
• 20 years – If HMRC can show that the inaccuracy was deliberate

If HMRC exceeds these limits, you may be able to challenge the validity of the assessment outright.

What you need to do immediately

Taking immediate action can improve your chances of a successful resolution:

1. Review the Discovery Assessment Notice

Identify the tax years involved, the amount HMRC claims you owe, the reason for the assessment, and the response deadline.

2. Check If HMRC Had Prior Knowledge

If you fully disclosed relevant information in your original return, HMRC cannot justify reopening it under the discovery rules.

3. Gather Your Financial Records
Locate tax returns, bank statements, business records, and any prior correspondence with HMRC.

4. Seek Professional Tax Advice

• It is vital to engage a tax specialist who can help you:
• Assess whether HMRC’s claim is justified
• Negotiate with HMRC on your behalf
• Prepare an appeal if necessary

Can you challenge the discovery assessment?

Yes, and there are several valid defences:

If you have grounds to dispute the assessment, you can request an HMRC review or file an appeal.

How to appeal a discovery assessment

If you disagree with HMRC’s assessment, you have two main options. First, you can request an internal review from HMRC. This must be done within 30 days of receiving the discovery assessment, and HMRC will reconsider their decision based on the available evidence.

If the internal review does not resolve the issue, you can escalate the dispute by appealing to the First-tier Tribunal (Tax Chamber). This independent body will review your case and make a legally binding decision. Given the complexity of tax disputes, ensuring your appeal is well-documented and professionally prepared can significantly improve your chances of success. You could also consider using HMRC’s Alternative Dispute Resolution facility.

What happens if you ignore the assessment?

Failing to respond to HMRC could lead to:

• Late payment penalties
• Interest charges on unpaid tax
• Debt collection proceedings
• Legal action for tax evasion (in severe cases)

Even if you dispute the assessment, it’s crucial to engage with HMRC early on.

How to prevent future discovery assessments

While not always avoidable, you can reduce your risk by working with a firm like Gravita. Our tax experts ensure compliance, identify potential red flags early, and help you navigate complex tax matters proactively. By partnering with a professional adviser, you reduce the likelihood of triggering a discovery assessment in the first place.

• Keeping accurate financial records
• Ensuring full disclosure in tax returns
• Seeking professional tax advice before filing complex returns

Conducting regular tax reviews to identify potential risks before HMRC does

Take action now

A discovery assessment is not necessarily final, and you have the right to challenge it. By reviewing HMRC’s claims, gathering evidence, and seeking expert advice, you may be able to dispute unfair assessments and protect your financial position.

If you have received a discovery assessment and need expert guidance, contact Dion Laycock, Partner, Tax at Gravita.