EM2001 - Working the enquiry: reviewing earlier years: introduction

Once you have established that the amounts shown in the return under review are understated you must decide whether you should extend the enquiry back into earlier years. At the same time you will usually be able to decide whether or not to pursue penalties.

You should consider various factors in all enquiries.

• If the likelihood of understatement did not arise in earlier years (a one-off capital gain as an example) you will not be looking beyond the year under enquiry, though a charge to penalties may arise.
• You can only re-open earlier years if you have made a ‘discovery’ EM3250+.
• In the normal course of events you will be working towards a contract settlement. If you are successful in this, then there is no need to make assessments to bring into charge tax for earlier years not covered by an open enquiry notice. Where you are experiencing delay in settling your enquiry or assessing time limits are about to expire you should consider making assessments under TMA70/S29 or FA98/Sch18/Para 41 to protect HMRC.
• It is not effective use of your time to be pursuing cases involving small amounts into earlier years.
• If the person has no assets and has ceased trading with no prospect of income, there is no point in creating a debt which can never be paid.

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If you decide to re-open earlier years you must tell the taxpayer and their agent.

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Where you have issued notices to file or returns for any years that may be part of your review of earlier years, or where returns have not yet been filed for these years, see EM2027.