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HMRC have the authority to open a discovery assessment into a taxpayer where HMRC discovers that:
(a) Any income or chargeable gains, which should have been assessed to tax, have not been assessed to tax; or,
(b) An assessment to tax is or has not been sufficient; or,
(c) Any relief that has been given is excessive.
HMRC must commence a discovery assessment, in relation to one of the above, within a prescribed period of 4 years from the end of the tax year to which the assessment relates. However, this 4-year period will be extended to 6 years where there is careless behaviour and 20 years where there is deliberate behaviour.
A significant body of case law has developed in relation to discovery assessments. In particular, the concept of staleness has been introduced to scrutinise the promptness of HMRC in commencing a discovery assessment.
“a discovery is something newly arising, not something stale and old. The conclusion that it is probable that there is an insufficiency must be one which newly arises.” (Corbally-Stourton v Revenue and Customs Comrs  UKSPC 692)
As a result, the courts will prevent a discovery assessment where HMRC has not acted on information when it is fresh and instead, has become stale.
To reconcile this with the prescriptive time limits provided in the legislation, the preventative measure of staleness does not limit HMRC where it does not have information relating to sufficiency, instead it only limits HMRC where it has the information but fails to act on that information within a reasonable time period.
This is further qualified to the extent that a discovery assessment must be raised “expeditiously” (Clive Beagles v Revenue & Customs Comrs  UKFTT 462 (TC) and in reality, staleness is only likely to arise only in the “most exceptional of cases” (Pattullo v Revenue & Customs Comrs  UKUT 270 (TCC).
The courts approach has been pragmatic in the application of staleness; rather than deeming any discovery assessment invalid after the expiration of a specified period of time, the courts will assess the facts holistically.
For example, the courts deemed HMRC that a discovery remained fresh where HMRC waited months for a Supreme Court decision before issuing a discovery assessment. (Revenue & Customs Comrs v Charlton (and Others) UKUT 770 (TCC)) However, there are examples where HMRC failed to act on a discovery for 2 years (Gordon and Others v Revenue & Customs Comrs UKFTT 307) and 5 years (Revenue & Customs Comrs v Raymond Tooth  UKUT 38 (TCC)) were held to be stale.
The First Tier Tribunal and Upper Tribunal has offered ample consideration on the concept of staleness and recently, the Upper Tribunal has invited a review of the authorities in the higher courts (Clive Beagles v Revenue & Customs Comrs  UKUT 0380 (TCC)). With HMRC’s aggressive crack down on non-compliance, avoidance and evasion, it is likely that greater scrutiny of HMRC exercising its authority will become increasingly common with the likely rise in discovery assessments.
For taxpayers, this also further emphasises the need for openness and honesty with HMRC. Once all relevant information is declared by a taxpayer to HMRC, the clock will start ticking and the onus will be on HMRC to raise a discovery assessment while that discovery is fresh.
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