HMRC Discovery Assessments: Time Limits, Offshore Window, and Appeals

HMRC discovery assessments are demands for underpaid income tax or capital gains tax that HMRC issues after the normal inquiry window has closed, using its power under Section 29 of the Taxes Management Act 1970. The assessment can cover tax, interest from the original due date, and penalties, and it can reach back four, six, twelve, or even twenty years depending on how the shortfall arose. The power is real, but it is also fenced in by statutory conditions and time limits, and a well-prepared taxpayer often has grounds to reduce or defeat the bill.

When HMRC Can Issue One

Two things have to be true before an assessment is valid. First, an HMRC officer must have “discovered” that tax has been under-assessed or that a relief was too generous. That does not require new information: it is enough that the shortfall has newly come to an officer’s attention, whether through a fresh review, a change of mind, or a colleague spotting something missed earlier.1HM Courts & Tribunals Service. HMRC v Charlton, Corfield & Corfield

Second, HMRC must clear one of two further hurdles. Either the under-assessment was brought about by careless or deliberate behaviour on the taxpayer’s part, or a hypothetical officer could not reasonably have been expected, based on the information the taxpayer made available, to spot the shortfall before the inquiry window closed.2GOV.UK. HMRC Internal Manual – EM3211 – Discovery: Legislation and Time Limits

That second condition is where many assessments fall apart. “Information made available” is defined broadly: it covers the return itself, accompanying accounts and documents, anything produced during an inquiry, and anything an officer could reasonably infer from that material. If your original filing gave a competent officer enough to identify the issue in time, HMRC cannot come back later on this route.2GOV.UK. HMRC Internal Manual – EM3211 – Discovery: Legislation and Time Limits

How Far Back HMRC Can Go

Time limits sit in Sections 34 and 36 of the Taxes Management Act 1970 and turn on taxpayer conduct. Once the applicable window closes, the year is closed for good, whatever amount was actually lost.

One argument that used to run was that a “discovery” goes stale if HMRC waits too long before acting on it. The Supreme Court closed that door in HMRC v Tooth (2021). Provided the assessment is issued within the statutory time limit, the length of time between the officer’s realisation and the notice does not matter.5GOV.UK. Enquiry Manual – EM3260 – Discovery: Staleness

The Twelve-Year Offshore Window

The twelve-year window, introduced by the Finance Act 2019, is worth pulling out because it can apply even when the taxpayer was neither careless nor deliberate. It covers “offshore matters” (income from a source outside the UK, assets held abroad, or activities carried on mainly overseas) and “offshore transfers” (where income or sale proceeds were moved out of the UK before the filing deadline, making the shortfall significantly harder to detect).4legislation.gov.uk. Finance Act 2019 – Time Limits for Assessments Etc.

There is a carve-out. HMRC cannot rely on the twelve-year window if it received relevant information from an overseas tax authority (under an international agreement or EU law) before the normal time limit expired and that information should reasonably have led it to identify the shortfall in time. The twenty-year window for deliberate behaviour still overrides the twelve-year limit where it applies.4legislation.gov.uk. Finance Act 2019 – Time Limits for Assessments Etc.

Tax, Interest, and Penalties

The assessment is only the tax figure. Interest runs from the date the tax was originally due, and penalties may sit on top where the shortfall came from an inaccuracy in the return. Penalties are calculated as a percentage of the “potential lost revenue,” and the rate depends on your behaviour and on whether you disclosed the problem or HMRC found it first.

Interest is separate. As of January 2026, the late payment rate on income tax, capital gains tax, and most other major taxes is 7.75%, calculated as the Bank of England base rate plus 4%.7GOV.UK. Rates and Allowances: HMRC Interest Rates for Late and Early Payments Because it runs from the original due date, a discovery assessment reaching back several years can generate a heavy interest bill by itself. Interest keeps accruing while you appeal, though you can apply to delay payment.

How To Respond and Appeal

Start by checking the notice against your records for the year in question. Look for estimated figures, double-counted income, and reliefs or allowances HMRC has ignored. Bank statements, invoices, expense receipts, and records of asset purchases or sales for the year are the material you need. Assessments built on incomplete data often shrink once real numbers are put in front of HMRC.

Filing the Appeal

You have 30 days from the date HMRC posts the assessment notice to file a written appeal to the officer who issued it. The clock runs from the posting date, not the day it lands on your doormat, so postal delay eats into the window.8GOV.UK. HMRC Internal Manual – ARTG2180 – Appeals Reviews and Tribunals Guidance – Time Limits for Making an Appeal A late appeal is possible but you will need a reasonable excuse, and HMRC can refuse.

In the same letter, apply to postpone payment of the disputed tax. Your postponement request has to explain why you disagree, what figure you believe is correct, and when you will pay it. HMRC will confirm in writing whether the delay is agreed.9GOV.UK. Delay Payment of Tax While You Appeal Interest keeps running on postponed tax, and a late payment penalty may apply if the appeal fails.

Statutory Review and the Tribunal

If HMRC rejects the appeal, you can ask for a statutory review. A different officer, not involved in the original decision, takes a second look. Reviews normally take 45 days, and the reviewer can uphold, vary, or cancel the assessment.10GOV.UK. Disagree With a Tax Decision or Penalty: Get a Review

If the review goes against you, you have 30 days from the review letter to appeal to the First-tier Tribunal (Tax Chamber). You can also skip the review and go straight to the tribunal once your initial appeal has been refused. A judge hears both sides and issues a binding decision. Win, and the assessment is cancelled or reduced. Lose, and the full amount of tax, interest, and any penalties becomes payable immediately, though you can seek permission to appeal to the Upper Tribunal on a point of law.10GOV.UK. Disagree With a Tax Decision or Penalty: Get a Review

The High-Income Child Benefit Charge Exception

One boundary worth flagging. In HMRC v Wilkes (2021), the Upper Tribunal held that HMRC cannot use a Section 29 discovery assessment to recover the High-Income Child Benefit Charge from someone who has not filed a self-assessment return. The charge is not “income” within the meaning of the statute; it sits at a different step in the income tax calculation.11HM Courts & Tribunals Service. The Commissioners for Her Majesty’s Revenue and Customs v Jason Wilkes

HMRC still has other routes to collect the charge, including issuing a notice to file a return, making a determination, or using a simple assessment under Section 28H TMA 1970 from 2016-17 onwards. But if the notice you received is specifically a discovery assessment for the child benefit charge and you never filed a self-assessment return for that year, the assessment itself may be invalid, even though the underlying liability remains.11HM Courts & Tribunals Service. The Commissioners for Her Majesty’s Revenue and Customs v Jason Wilkes

Protecting Yourself on Future Returns

The strongest long-term defence is disclosure on the original return. If your filing already contains enough for a competent officer to identify a potential issue, the second statutory condition fails and HMRC cannot use a discovery assessment on that ground. The “Any other information” box on the self-assessment return, often called the white space, is where you build that protection.12HM Revenue & Customs. SA150 Notes 2026

HMRC’s Statement of Practice 1 (2006), issued after the Court of Appeal decision in Langham v Veltema, sets the standard. You need to give a competent officer enough to realise the self-assessment may be insufficient, but you do not have to quantify the exact tax effect. If a valuation drives a figure, name the valuer and their independence and qualifications. If you have taken a view of the law that differs from HMRC guidance, say so; as long as the position is not wholly unreasonable, you achieve finality once the inquiry window closes without an inquiry being opened.13GOV.UK. Statement of Practice 1 (2006)

One warning from the same guidance: burying a significant item inside a mass of documents is not disclosure. If the volume is such that an officer could not reasonably be expected to notice the point, you have to draw attention to it specifically. Clarity beats bulk.