Michael Lansdell explains how HMRC's power will soon change.
On January 11, the latest version of the Finance Bill was published, confirming that HMRC will soon be able look into an individual’s tax affairs retrospectively, and issue ‘discovery assessments’ when it believes a liability has gone unreported.
It’s been a long time since HMRC’s powers of discovery were updated – around 14 years, in fact, in 2008. Why now, then? Well, a case from 2021 exposed a loophole that the new rule will change when it becomes law, which is likely to be this summer.
HMRC v Jason Wilkes (2021) centred around the high-income child benefit charge (HICBC). When there is a liability to the HICBC, HMCR must be notified, via self-assessment or in writing, or it can start an enquiry/issue a discovery assessment. The loophole in this particular case was that the courts ruled the discovery assessment can only be made for an undeclared tax liability on income, which HICBC is not.
But when the new legislation becomes law, HMRC will be able to look back to 2013, when the HICBC was introduced. It will then issue discovery assessments to anyone it believes should have reported the charge, but didn’t, for however many of the years an individual failed to do so.
Similar loopholes will also close with regards to discovery assessments for pension charges and the clawback of gift aid relief. Charges will apply retrospectively, but the retrospective effect will not apply to an existing discovery assessment that has already been appealed. Be careful though, as certain conditions must be met for this tip to apply, so ensure you get guidance from a tax specialist, like the team at Figurit.
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