INVESTIGATIONS - 26.01.2022

New investigation powers for HMRC

New legislation. The latest version of this year’s Finance Bill, published on 11 January 2022, confirms that HMRC will be allowed to issue so-called discovery assessments to collect tax where it believes a person has failed to report a liability. Its “discovery” powers were last overhauled in 2008 and the proposed new law closes a loophole exposed in a recent court case.

The case.HMRC v Jason Wilkes 2021 involved the high income child benefit charge (HICBC). A liability to the HICBC must be notified to HMRC through self-assessment or in writing (if you’re not within self-assessment). If you don’t inform HMRC it can start an enquiry or issue a discovery assessment . However, in the Wilkes case the courts ruled that a discovery assessment can only be made in respect of an undeclared tax liability on income. Because the HICBC isn’t tax on income but is a clawback of child benefit through the tax system, the discovery rules could not apply.

Trap. When it becomes law, probably in July 2022, the new legislation will remove the technical loophole allowing HMRC to look back as far as 2013, when the HICBC was introduced, and issue discovery assessments if it thinks you ought to have reported the charge but failed to do so for one or more years.

Not only HICBC. The Wilkes case also highlights loopholes in respect of HMRC discovery assessments relating to pension charges and gift aid (see The next step ). The new legislation closes these too and again the change will apply retrospectively. Tip. The retrospective effect of legislation doesn’t apply to an existing discovery assessment if you have already appealed against it. However, there are a number of conditions relating to this get-out clause (see The next step ).

For more information about a discovery relating to pension charges and gift aid, and when an appeal protects you from the new rules, visit https://www.tips-and-advice.co.uk , Download Zone, year 22, issue 8.