Ultimate Guide to HMRC Discovery Assessments: How to Challenge & Appeal (2026)

Receiving an HMRC discovery assessment is alarming. It means HMRC believes you have paid insufficient tax, and it can arrive years after you filed your return, without warning. However, a discovery assessment is not automatically valid. The law imposes strict conditions on HMRC’s power to issue one, and many assessments are successfully challenged or overturned on appeal.

What Is an HMRC Discovery Assessment?

An HMRC discovery assessment is a formal tax assessment raised outside the ordinary enquiry window. Under section 29(1) of the Taxes Management Act 1970 (TMA 1970), HMRC may issue an assessment where an officer of HMRC “discovers” that any income which ought to have been assessed has not been assessed, that an assessment has been made at too low a figure, or that excessive relief has been given.

In plain terms: if HMRC comes to believe, even after your return has been processed without challenge, that you have underpaid tax, it can reopen your affairs using this power. It is a wide power, but it is not unlimited.

What Triggers a Discovery Assessment?

Common triggers include:

• Third-party data received by HMRC (e.g. from employers, banks, overseas tax authorities, or Companies House)
• Information disclosed in a related return, for example, a company’s corporation tax return revealing a discrepancy with a director’s personal return
• HMRC’s Connect data-matching system identifying undisclosed income or assets
• An officer reviewing a return and forming a fresh view of the tax position
• Offshore account disclosures under international information exchange agreements

The Legal Framework: When Can HMRC Issue a Discovery Assessment?

The power to raise a discovery assessment is governed by TMA 1970 s.29, supplemented by time limit provisions in section 34 and section 36 TMA 1970. Understanding this framework is essential to any challenge.

The Two-Stage Test Under TMA 1970 s.29

HMRC must satisfy two conditions before a valid discovery assessment can be raised. First, an officer must genuinely “discover” an insufficiency of tax, meaning the officer must have an honest belief that tax has been lost, not merely a suspicion. The courts have confirmed this in Jerome Anderson v HMRC [2018] UKUT 0159 (TCC), where the tribunal held that mere suspicion is insufficient to constitute a discovery.

Second, HMRC must satisfy one of two “gateway” conditions under s.29(4) and s.29(5) TMA 1970:

• The insufficiency of tax is attributable to fraudulent or careless conduct by the taxpayer or their agent; or
• At the time the enquiry window closed, a hypothetical officer could not reasonably have been expected to be aware of the insufficiency from the information made available to them.

The second gateway, often called the “hypothetical officer” test, is frequently the key battleground. The landmark Court of Appeal case of Langham v Veltema [2004] STC 544 established that HMRC is shut out from raising a discovery assessment where the taxpayer, in making an honest and accurate return, has clearly alerted HMRC to the insufficiency of the assessment. Where full and specific disclosure has been made, the assessment will be invalid.

Following Veltema, HMRC published Statement of Practice SP1/06, setting out examples of adequate disclosure, such as identifying the source and basis of property valuations, or explaining departures from HMRC’s published interpretation of the law. Taxpayers who followed SP1/06 have significant protection, but the adequacy of disclosure remains fact-specific.

Time Limits for Discovery Assessments

The ordinary time limit for a discovery assessment is 4 years from the end of the relevant tax year (section 34 TMA 1970). However, if the loss of tax is attributable to careless conduct, HMRC has 6 years. Where the conduct is deliberate, the time limit extends to 20 years (section 36 TMA 1970). Challenging the applicable time limit is often one of the most powerful defences available.

Grounds for Challenging a Discovery Assessment

A discovery assessment issued against you is not the end of the matter. There are a number of grounds on which the assessment may be invalid or excessive. Our specialist tax disputes team regularly succeeds on the following grounds:

1. No Valid “Discovery”

HMRC must demonstrate that an officer genuinely formed a belief, not merely a suspicion, of an insufficiency. Where HMRC has simply reassessed an existing return without new information, the assessment may be challenged on the basis that no discovery has been made. The tribunal in Charlton and others v HMRC [2011] UKFTT 467 (TC) confirmed that officers are expected to exercise reasonable professional judgment and cannot simply rely on general suspicion.

2. Adequate Prior Disclosure

If your return, or correspondence with HMRC, made sufficiently clear disclosure of the relevant facts to alert a reasonable officer to the potential insufficiency, the s.29(5) TMA 1970 gateway is not satisfied. This is a highly fact-specific argument that requires careful analysis of what was disclosed and when. A tax disputes solicitor will review your return and accompanying documents to assess this ground.

3. Time Bar

If HMRC has issued the assessment outside the applicable time limit, it is invalid regardless of whether the underlying tax is owed. Time limits are strictly applied, and HMRC must be in a position to establish both the date from which time runs and the correct limitation period. Many assessments fall at this hurdle.

4. Quantum

Even where an assessment is legally valid, the amount assessed may be excessive. HMRC’s estimated figures are frequently challenged, and the tribunal can substitute its own calculation. Gathering evidence to support a lower figure is essential to any appeal strategy.

5. Prevailing Practice Defence

Under s.29(2) TMA 1970, HMRC cannot make good an insufficiency that arose because the return was made in accordance with generally prevailing practice at the time of filing. This defence is particularly relevant in areas where HMRC subsequently changed its interpretation of the law.

How to Challenge an HMRC Discovery Assessment: Practical Steps

If you receive a discovery assessment, the following steps are critical. Time limits are strict and missing the appeal deadline can be fatal to your position.

Step 1: Do Not Ignore the Assessment

You have 30 days from the date of the assessment to appeal to HMRC. If you miss this deadline, the assessment becomes final unless you can persuade the First-tier Tribunal to admit a late appeal, a process that has become more flexible following Medpro Healthcare Ltd v HMRC [2025] UKUT 255 (TCC), but which still carries real risk. Seek legal advice immediately.

Step 2: Obtain Legal Advice Without Delay

Discovery assessment appeals are technically demanding. The applicable statute, the relevant case law, and the procedural rules of the First-tier Tax Tribunal all require specialist knowledge. Early legal advice allows you to assess the strength of your position, identify the best grounds of challenge, and avoid making statements that could prejudice your case.

LEXLAW’s team includes lawyers with first-hand experience of HMRC’s internal processes, having previously worked as HMRC’s own senior tax counsel. This insight is invaluable in formulating an effective challenge.

Step 3: Request an HMRC Internal Review

Before proceeding to the Tribunal, you may request an HMRC internal review. This is conducted by an officer not previously involved in your case. It is an important opportunity to present your arguments, adduce new evidence, and potentially resolve the dispute without litigation. Requesting a review does not extend the appeal window, so it must be coordinated carefully.

Step 4: Appeal to the First-tier Tribunal

If the internal review does not resolve the dispute, the matter proceeds to the First-tier Tribunal (Tax Chamber), an independent judicial body with full jurisdiction to allow, vary, or set aside the assessment. The appeal is commenced by filing a Notice of Appeal with the Tribunal. At the hearing, the burden of proving the assessment rests on HMRC for certain issues, but the taxpayer must actively make good their own grounds of challenge.

Our tax litigators are experienced in preparing and presenting appeals at the Tribunal, including the drafting of witness statements, skeleton arguments, and advocacy at hearing. Cases with wider implications can proceed to the Upper Tribunal and beyond on points of law.

Step 5: Consider Alternative Dispute Resolution

HMRC actively engages in Alternative Dispute Resolution (ADR) for certain disputes. ADR can be a cost-effective route to settlement, particularly in cases involving factual disagreements or where the legal position is uncertain. It does not prevent the taxpayer from proceeding to the Tribunal if agreement is not reached.

Discovery Assessments and Related HMRC Actions

A discovery assessment is often part of a broader HMRC enforcement picture. Depending on your circumstances, it may be accompanied by HMRC tax penalties, HMRC security notices, or in more serious cases, a Code of Practice 9 investigation. Where a company is involved, HMRC’s collection of an underlying tax debt may also lead to insolvency proceedings, including winding-up petitions. If you are facing any of these related actions, see windinguppetitionsolicitors.co.uk for specialist advice.

In cases involving professional advisers whose negligent advice has exposed you to a tax liability, you may also have a claim in professional negligence. LEXLAW regularly acts in cases where accountants or tax advisers have failed to adequately disclose matters in returns, resulting in discovery assessments that could have been prevented.