What are Discovery Powers?
A taxpayer has a time limit in which to make a return to HMRC. In turn, HMRC has a time limit in which to make enquiries into a return.
If HMRC discovers information after those time limits have passed, in certain circumstances HMRC can use its Discovery Powers and make Discovery Assessments.
How far can HMRC go back?
If the return is considered to have been completed with reasonable care, HMRC can only go back 4 years.
If HMRC can demonstrate that the taxpayer was careless, HMRC can go back 6 years after the end of the year of assessment.
If HMRC can show that the error that led to the understatement was deliberate, HMRC can go back 20 years after the end of the year of assessment.
Why should I be concerned?
For every tax year that HMRC is able to go back, you will owe interest as well as any tax that may be due. You may also be liable to a penalty.
HMRC will review any new information obtained and consider what further action to take, if any. If HMRC come across new information, they will consider the matter again for prosecution or in terms of escalating their investigation. If prosecution is pursued or Code of Practice 9 is issued, you will be denied from using any of the Disclosure Facilities which will be on more favourable terms.
What should I do next?
If you have a Disclosure to make or you are concerned that HMRC may misunderstand any information they may have in their possession, you should seek advice urgently. Once the decision to prosecute has been taken, it is difficult to reverse. Simply making a Disclosure does not automatically mean that you have done wrong or that you owe any tax.
If you wish to discuss this or any other matter with a member of the team, please contact us.