When HMRC ‘discovers’ that a taxpayer has paid insufficient tax, it can make a discovery assessment (TMA 1970 s29) to recover the missing tax. Its power to do so is limited in certain situations, where HMRC could – and should – have recovered the tax using routine self-assessment methods.
If the window for opening an enquiry has closed with no enquiry actually made, HMRC can’t raise an assessment to recover any missing tax unless one of two conditions is satisfied:
The error was brought about carelessly or deliberately by the taxpayer (or someone acting on his behalf) (TMA 1970 s 29(4)); or
An officer “could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of” the insufficiency (TMA 1970 s29(5)).