INTM268520 - Non-residents trading in the UK: Returns and assessments outside normal time limits: Assessing time limits

The normal time limit for assessments is not more than 4 years after the end of the relevant accounting period (FA98/SCH18/PARA46(1).

However, in a potential Permanent Establishment or Residence case where no return notice has been issued, the Failure to Notify provisions apply.

For accounting periods ending on or after 1 April 2010, where there has been Failure to Notify chargeability (as required under FA98/SCH18/PARA2) the time limit for assessments is extended, by FA98/SCH18/PARA46(2A)(b), to no later than 20 years after the end of the accounting period to which the failure relates. Where no return has been delivered the restrictions in FA98/SCH18/PARA42 to FA98/SCH18/PARA45 are irrelevant and there is no behavioural test.

Nevertheless, to make a discovery you have to find something out that leads to the conclusion that something is assessable (thinking it may be assessable is not sufficient). You do not need legal evidence of that but your conclusion has to be reasonable on the information available. But failure to provide any information does not necessarily provide protection if your conclusions are reasonable in the circumstances. SP1/06 (which external users can read at the Library section of the HMRC website) clarifies the circumstances where HMRC seeks to recover tax when a self-assessment is found to be insufficient following the case of Langham v Veltema.

To issue a discovery assessment prematurely when we do not have sufficient evidence to support a reasonable conclusion of such a discovery leaves us highly vulnerable to having an appeal against the assessment upheld. Therefore, where there is reason to suspect a failure to notify, information powers should be used to establish sufficient evidence of chargeability before any steps are taken to rectify the failure.

Once such supporting evidence has been collated, the appropriate response will be as follows:

  • For each accounting period with a failure to notify where the period ended less than three years and nine months previously, a notice to file should be issued. Determinations should then be made if any returns are not forthcoming.
  • For any other accounting period (from 1 April 2010) with a failure to notify, a discovery assessment should be issued, subject to the 20-year time limit.

It is worth noting that a Commissioners’ sanction is not required for an assessment (and closure notices) in relation to a permanent establishment (contrast this with Transfer Pricing rules see INTM483090). However, from a practical perspective, if a discovery assessment is being considered for failure to notify a permanent establishment, a submission must be made to BAI. And any issue of profit attribution must go through the normal TP governance procedures.

Assessing historic accounting periods with a Failure to Notify (pre-1 April 2010)

In an exceptional case where the application of the 20-year time limit assessments to be raised for an accounting period or periods ending on or before 31 March 2010, it is noted that some additional behavioural conditions do apply.

For accounting periods ending on or before 31 March 2010 which still fall within the 20-year assessing time limit, an assessment can only be made in cases involving fraud or negligence. However, where there has been Failure to Notify chargeability (as required under FA98/SCH18/PARA2) then prima facie there will have been at least negligence so that a discovery assessment can be raised under FA98/SCH18/PARA41 within the 20-year time limit (FA98/SCH18/PARA46(2A)). Where no return has been delivered the restrictions in FA98/SCH18/PARA42 to FA98/SCH18/PARA45 are again irrelevant.

There is more detailed guidance about assessing time limits in the Compliance Handbook.