Category: Tax investigations and HMRC powers · Reviewed by the Apex broking team · Last reviewed 2026-08-20
Category: Tax investigations and HMRC powers Also known as: discovery, s.29 assessment (companies: paragraph 41 Schedule 18 Finance Act 1998) Related concepts: HMRC enquiry window, aspect enquiry
Self assessment gives HMRC a limited period — the enquiry window — to enquire into a return. Once that window closes, the taxpayer would ordinarily have finality. Section 29 Taxes Management Act 1970 qualifies that finality: if an officer discovers that income or gains have not been assessed, that an assessment is insufficient, or that relief has been given which is excessive, HMRC may make an assessment — a discovery assessment — to recover the loss of tax. For companies, the equivalent power is in paragraph 41 Schedule 18 Finance Act 1998.
Where the taxpayer delivered a return, a discovery assessment is only permitted, in outline, if one of two conditions is met: the insufficiency was brought about carelessly or deliberately by the taxpayer or someone acting on their behalf; or, at the time the enquiry window closed, the officer could not reasonably have been expected to be aware of the insufficiency from the information made available in or with the return. These conditions are the usual battleground when a discovery assessment is challenged, because they decide whether HMRC is entitled to reopen a closed year at all.
The time limits for making assessments are set by sections 34 and 36 Taxes Management Act 1970 and, for companies, Schedule 18 Finance Act 1998. In outline only: the ordinary limit is 4 years from the end of the year of assessment or accounting period; where the loss of tax was brought about carelessly, 6 years; and where it was brought about deliberately, 20 years. Extended limits also apply in certain other statutory cases, including some offshore matters. The precise limit in any case depends on the statute as applied to its facts.
A discovery assessment is by definition made after the enquiry window has closed, so it usually arrives long after the return was filed — prompted by new information such as data from third parties or other jurisdictions, a later enquiry into another year, or a change in HMRC’s view of an arrangement. The taxpayer then faces a dispute about years they may have regarded as settled, with records to reconstruct and both the conditions for discovery and the underlying tax position to argue. A discovery assessment can be appealed, and the professional fees of contesting one — often across several years at once — are a core part of the exposure covered by the costs of an HMRC investigation.
Discovery is the reason a closed year is not always a finished year. The closing of the enquiry window gives finality only within limits, and those limits stretch with the behaviour alleged — which is why disputes about carelessness and deliberateness carry consequences well beyond penalties.
This entry is part of the Apex Insurance Wiki. Last reviewed 2026-08-20. Next review: 2027-02-20.
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