When an assessment is made outside of an enquiry window, it is necessary to consider if there has been a discovery. Section 29 TMA 1970 provides the ability for HMRC to raise an assessment where loss of income tax or capital gains tax is discovered. Paragraph 25 FA 2010 includes discovery provisions for corporation tax and s240 IHTA 1984 contains similar provisions for inheritance tax.
For income tax, capital gains tax and corporation tax: the legislation was overhauled during the introduction of self-assessment with the aim of providing a taxpayer with finality where adequate disclosure is made.
To determine whether there has been a discovery requires the consideration of two questions:
- Did the officer who raised an assessment, at the time the discovery assessment was issued, have a belief that there was an insufficiency of tax?
- Was that belief objectively a reasonable one?
We have previously pontificated on when an officer makes a discovery. However, in light of the liability on contributions to employee benefit trusts (EBTs) or similar structures we make the following observations:
- If an enquiry is open, HMRC have the ability to seek further tax regardless of discovery provisions
- If an enquiry is open into an employer but not the employee, the scope to seek tax from the employee may be restricted
- If assessments have been made on the employer but not the employee, the fairness of seeking tax from the employee many years later needs to be considered