HMRC Discovery Assessments: What You Need to Know

Most taxpayers assume that once a tax return has been filed and the enquiry window has passed, the matter is closed. HMRC thinks otherwise.

A discovery assessment allows HMRC to reopen settled tax years and demand unpaid tax — in some cases reaching back twenty years into a taxpayer's history. It is one of the most powerful tools in HMRC's armoury, and one of the most frequently misunderstood.

What Is a Discovery Assessment?

When you file a UK tax return, HMRC has twelve months in which to open a formal enquiry into it. Once that window closes, your liability for that year is generally regarded as final.

A discovery assessment is the mechanism by which HMRC can override that finality. If an HMRC officer subsequently "discovers" that tax has been underpaid — whether because income was not declared, relief was overclaimed, or a repayment should not have been made — they can issue an assessment to recover the shortfall, even years after the original return was filed.

The word "discovery" is deliberately broad. It does not require new facts to have come to light. A change of view, a new officer taking a fresh look at an old file, or information obtained from a third party investigation can all be enough. Once a discovery is made, HMRC has confirmed that it does not go stale — the Supreme Court in HMRC v Tooth [2021] put paid to that argument definitively.

When Can HMRC Open One?

A discovery assessment is not available to HMRC automatically. Three conditions must be met: HMRC must have identified an actual tax loss; where a return has been filed, either the taxpayer's conduct must have been careless or deliberate, or HMRC must show that a reasonable officer could not have spotted the underpayment from the information provided; and the assessment must be issued within the applicable time limit.

It is that last condition — the time limit — where the real battles are fought.

How Far Back Can HMRC Go?

The answer depends entirely on how HMRC characterises your conduct — and the difference between each category is significant:

Four years is the basic limit, applying where HMRC could not reasonably have identified the underpayment from the information you provided. For many taxpayers, this is the starting point — but HMRC will rarely settle for it if it believes it can do better.

Six years applies where HMRC establishes that the underpayment resulted from careless conduct. This does not require dishonesty — a failure to take reasonable care, even where you relied on an adviser, can be enough. Critically, as confirmed by the Court of Appeal in Mainpay Ltd v HMRC [2025], HMRC must show that the carelessness actually caused the tax loss — not merely that errors were made.

Twenty years is reserved for cases HMRC classifies as deliberate. This is the nuclear option, and HMRC uses it aggressively — particularly in cases involving tax planning arrangements, offshore structures, or undisclosed income. The Supreme Court in HMRC v Tooth [2021] confirmed that deliberate means an intention to mislead, not merely an inaccuracy in a return. That is a high bar — but HMRC will nonetheless attempt to clear it wherever it can.

The Stakes in Practice

The consequences of HMRC successfully invoking the twenty-year window can be severe. We are not talking about a single year of unpaid tax — we are talking about two decades of potential liability, interest and penalties compounding over time.

Earlier this year, in Outram v HMRC [2026], HMRC sought to use the twenty-year time limit against two brothers who had participated in a marketed tax avoidance scheme. The First-tier Tribunal ruled in the taxpayers' favour, finding they had acted in good faith on professional advice and had not behaved deliberately. It was the right outcome — but it took years of litigation and considerable cost to achieve. Had the brothers not had specialist representation, the result could easily have been different.

In contrast, in Holden v HMRC [2026], the Upper Tribunal found against the taxpayer, concluding that failing to obtain independent specialist advice on an aggressive avoidance scheme amounted to careless conduct — extending HMRC's window to six years.

The line between these outcomes is rarely obvious. It turns on detailed questions of fact, the quality of advice received, the disclosures made in tax returns, and the specific circumstances of each case.

What This Means for You

If you have received a discovery assessment — or if you have participated in tax planning arrangements, hold offshore assets, or have any reason to believe your historic tax position might attract HMRC attention — the time to take advice is before HMRC comes knocking, not after.

Early intervention can determine whether an assessment is validly made at all, limit the years HMRC can reach back to, and significantly affect the financial outcome.

Received a Discovery Assessment?

At Laggan, we advise high net worth individuals, international clients and foreign businesses on HMRC investigations and tax disputes. If you have received a discovery assessment or have concerns about your historic tax position, contact us to discuss your position in confidence.