Section 29 TMA 1970: HMRC’s Discovery Assessment Power Explained

Section 29 of the Taxes Management Act 1970 is the statutory source of HMRC’s power to raise a discovery assessment. Understanding exactly what the section says and what decades of case law have established it means, is essential for anyone challenging or defending against an assessment.

s29(1): the core discovery power

Section 29(1) TMA 1970 provides (in summary) that if an officer of the Board discovers that:

• any income which ought to have been assessed to income tax has not been assessed; or
• an assessment to tax is or has become insufficient; or
• any relief given has been excessive,

the officer may make an assessment in the amount (or further amount) which ought in that officer’s opinion to be charged.

Plain-English translation: If an HMRC officer realises that not enough tax has been charged, they can raise an additional assessment for the shortfall. The power sounds broad, but the word “discovers” carries real legal weight and the subsequent subsections impose significant limits on when the power can be used.

The power applies to income tax, capital gains tax and Class 4 national insurance contributions. The equivalent for corporation tax is in Finance Act 1998 Schedule 18 (see below).

s29(2): the officer must be an officer of HMRC

Section 29(2) TMA 1970 specifies that the assessment must be made by an officer of the Board. In practice this means a properly authorised officer of HMRC. An assessment made by a person who does not have the necessary authorisation, for example, an administrative employee rather than an authorised inspector, is invalid.

This point rarely succeeds in practice because HMRC’s systems ensure that discovery assessments are raised through authorised channels. However, where there is any doubt about the authority of the particular officer, it should be investigated. Challenges on this ground have occasionally succeeded in unusual circumstances.

The assessment notice itself should identify the issuing officer. If it does not or if there is any ambiguity about the officer’s status, a request for clarification should be made promptly.

s29(3): the taxpayer protection, the “hypothetical officer”

Section 29(3) TMA 1970 is the central taxpayer protection. It provides that where the taxpayer has made and delivered a return, HMRC cannot raise a discovery assessment unless, at the time the enquiry window closed (or the assessment is made), a hypothetical HMRC officer could not reasonably have been expected to be aware of the insufficiency, based only on the information in the return, claims and documents submitted to HMRC.

This provision operates as a bar to assessment. Its effect is that if the taxpayer has provided enough information in their return for a competent officer to identify the underpayment, HMRC has already had its opportunity, it cannot come back years later claiming to “discover” something that was visible in the filing.

Key features of the s29(3) test:

• Hypothetical, not actual: The question is not whether HMRC’s real officer spotted the issue, but whether a hypothetical reasonable officer could have been expected to do so. An officer’s actual failure to notice something does not help HMRC if a competent officer would have noticed it.
• Based on the documents submitted: The relevant information is confined to what the taxpayer provided, the return, claims, accounts, computations and any accompanying notes or white-space disclosures. HMRC’s own intelligence data is not relevant to s29(3) (though it is relevant to the staleness analysis).
• Objectively assessed: What counts as sufficient disclosure is judged objectively by reference to the standard of a reasonable, competent officer. The standard is not perfect knowledge; nor is it the lowest possible standard.

In practical terms, s29(3) rewards careful disclosure. A taxpayer who includes a clear note in the return explaining a potentially controversial treatment or who attaches computations showing how a particular figure was arrived at, is in a far stronger position than one who merely enters a number without explanation.

s29(4) and (5): the exceptions that override s29(3)

The taxpayer protection in s29(3) is not absolute. Sections 29(4) and (5) provide that the protection does not apply, and HMRC can raise a discovery assessment even where disclosure was sufficient, if one of two exceptions applies:

s29(4): the officer-awareness exception

Where, at the relevant time, HMRC had information that went beyond what was in the return and documents, for example, because of information obtained in an enquiry or from a third party and that additional information was such that a reasonable officer could have been expected to be aware of the insufficiency, s29(4) preserves the bar.

In practice, s29(4) is rarely in issue because it operates to extend the taxpayer’s protection, not to limit it.

s29(5): the careless or deliberate exception

Section 29(5) provides that the s29(3) protection is overridden, and HMRC can raise a discovery assessment regardless of what the return contained, where the under-assessment of tax was brought about by the taxpayer’s careless or deliberate behaviour (or that of a person acting on the taxpayer’s behalf).

This is the provision that gives HMRC its extended reach. If the taxpayer was careless, HMRC need not show that the return was insufficient, it can go directly to assessment (subject to the 6-year time limit). If the taxpayer was deliberate, the 20-year window opens and the s29(3) protection falls away entirely.

The definitions of “careless” and “deliberate” are the same as for penalty purposes under Finance Act 2007 Schedule 24. HMRC must establish the required behaviour; the taxpayer does not have to disprove it. See our time limits guide for the detailed analysis.

s29(6): previously insufficient assessments

Section 29(6) TMA 1970 extends the discovery concept to cover a situation where a previous assessment has become insufficient, typically because of a retrospective change in the law, a court decision affecting the interpretation of a tax scheme or an event that post-dates the original assessment.

The most common modern application is where a court or tribunal decision determines that a marketed tax avoidance scheme does not achieve the tax advantage claimed. Where the taxpayer used the scheme and an assessment was made accepting the claimed treatment, HMRC may use s29(6) to raise a further assessment once the scheme has been judicially defeated. This is a particularly important provision in the context of tax scheme follower notice and accelerated payment notice proceedings.

The case law map

Section 29 has generated a substantial body of case law. The key decisions are:

Langham v Veltema [2004] EWCA Civ 193

The Court of Appeal established the discovery threshold: an HMRC officer must have genuinely formed a subjective belief that there is an insufficiency, not merely have access to information from which that conclusion might be drawn. The case also confirmed that a discovery can be made at any time and that the s29(3) test is objective, not actual.

Corbally-Stourton v HMRC [2008] SpC 692

The Special Commissioner applied the staleness doctrine and quashed an assessment where HMRC had access to the relevant information for a substantial period before the discovery assessment was raised. This case remains a key authority for staleness arguments.

Anderson v HMRC [2009] UKFTT

The First-Tier Tribunal analysed what “aware” means in the s29(3) context. The Tribunal confirmed that “aware” requires actual knowledge, not mere suspicion and that the hypothetical officer must be able to identify the nature of the insufficiency, not just suspect that something might be wrong.

Charlton v HMRC [2012] UKUT 770

The Upper Tribunal considered the interaction between discovery assessments and the follower notice regime in the context of marketed tax avoidance schemes. The case provides guidance on when HMRC can treat a court decision defeating a scheme as a “discovery” for s29 purposes, opening the s29(6) route.

Tower MCashback LLP v HMRC [2011] SC (UKSC)

The Supreme Court addressed the sufficient disclosure test in the context of a marketed tax avoidance scheme. Their Lordships held that a scheme return that disclosed the transaction structure in summary but not in full detail was sufficient disclosure for s29(3) purposes, even though the full facts might have led a reasonable officer to question the claimed treatment. The decision is a significant authority for taxpayers with scheme disclosures in their returns.

Roger Tooth v HMRC [2018] UKUT 38 and [2021] UKSC

The Supreme Court in Tooth addressed whether an inaccuracy in a return must be “deliberate” in the same year as the discovery or whether a careless initial error that is then maintained deliberately triggers the deliberate behaviour provisions. The case has important implications for the 20-year window and the staleness analysis.

The corporation tax equivalent: FA 1998 Sch 18 para 41

Corporation tax self-assessment does not operate under TMA 1970 in the same way as income tax. Instead, Finance Act 1998 Schedule 18 sets out the equivalent framework for companies. The discovery assessment power for corporation tax is found at paragraph 41 of Schedule 18 and it follows the same structure as s29 TMA 1970:

• Paragraph 41(1): the core discovery power (equivalent to s29(1))
• Paragraph 41(2): the assessment must be by an authorised officer (equivalent to s29(2))
• Paragraph 41(3): the company-protection provision (equivalent to s29(3), based on information in the return and accompanying accounts and computations)
• Paragraph 41(4)–(5): the careless/deliberate exceptions (equivalent to s29(4)–(5))
• Paragraph 46: the time limits (4/6/20-year structure equivalent to ss34–36 TMA 1970)

The standard assessment window for corporation tax runs from 9 months and 1 day after the end of the accounting period, with the 4/6/20-year extensions applying in the same circumstances as for income tax.

For companies, the “documents submitted” for s29(3) equivalent purposes include the corporation tax return (form CT600), the statutory accounts and the tax computations. Given that company accounts typically contain considerably more financial detail than individual self-assessment returns, the scope for a sufficient-disclosure argument is often wider for corporate taxpayers.

Putting it all together: a practical checklist

When a discovery assessment is received, the following questions should be addressed in this order:

1. Was the assessment issued by a properly authorised officer? (s29(2))
2. Is the assessment within the applicable time limit? (ss34–36A), calculate the window and verify the issue date
3. Has the discovery gone stale? , investigate what HMRC knew and when
4. Was there sufficient disclosure in the return? (s29(3)), review the original return and any accompanying documents
5. Is HMRC relying on careless or deliberate behaviour? (s29(4)–(5)), if so, has HMRC actually established this?
6. Is the quantum right? , even if the assessment is valid in principle, the amount may be overstated
7. Are associated penalties challengeable? , behaviour categorisation, quality of disclosure, reasonable excuse

Where any of these questions yields a positive answer for the taxpayer, an appeal should be considered. See our step-by-step appeal guide for the procedural framework.

Frequently asked questions

Related guides in this series

• HMRC discovery assessments: the complete guide
• Discovery assessment time limits: 4, 6 and 20 years
• The staleness defence against a discovery assessment
• How to appeal an HMRC discovery assessment
• Income tax investigation service
• Corporation tax investigation service