The conditions to be satisfied in TMA 1970 s 29 in order for HMRC to issue a discovery assessment are extensive and complicated. Serious difficulties arise because we must ignore the real situation and consider the position and assumed understanding of a hypothetical tax officer who has a number of uncertain characteristics. And these things will vary from case to case. It is no surprise that these provisions rarely provide any real protection for the taxpayer, which one might reasonably have supposed was their purpose.
There is one issue that was considered in the recent case of R Madsen v HMRC [2026] UKFTT 615 (TC) about which I would respectfully say that the First-tier Tribunal has injected a welcome breath of fresh air into the subject.
One critical condition of whether a discovery assessment can be issued is that ‘the officer could not have been reasonably expected on the basis of the information available to him before that time [the deadline] to be aware of the situation mentioned in subsection 1 above [that an assessment to tax is insufficient]’ (s 29(5)).
That of course gives rise to a lot of different judgments about what could reasonably have been expected, but it is made worse by the fact that the reference to ‘the information available to him’ does not mean what it says. Section 29(6) imposes a very restrictive meaning to the effect that even though HMRC may have absolutely 100% of all the information it could possibly require, all that information can be ignored if it was not provided by the taxpayer himself, or by a person acting on his behalf.
An important part of the judgment in Madsen dealt with exactly this point. The case in fact concerned SDLT which of course has its own tax code, but it is accepted that rules relating to discovery assessments are the same.
The taxpayer submitted an SDLT return which by itself was not regarded as being enough to make the hypothetical office aware of an insufficiency.
(In fact, HMRC had loads more information about the SDLT avoidance scheme used by the taxpayer, which, in real life would have been very important, but that information had not been provided by the taxpayer, or by a person acting on his behalf, so it could be ignored.)
The crucial issue was whether an explanatory letter written to HMRC by a third party specifically about the transaction could be taken into account.
HMRC said that the person writing the letter was not the registered agent and HMRC did not recognise him as a person acting on the taxpayer’s behalf – but the FTT said that this did not matter. There was no statutory requirement that HMRC had to ‘recognise’ the person. The letter was written at least partially on Mr Madsen’s behalf and that was enough to satisfy the condition.
Furthermore, the FTT considered that the information in the letter would have given the hypothetical officer sufficient information for the purpose of raising a discovery assessment.
This might be thought to be a close call because one can see how easily it could have gone the other way, but the application of common sense into these really difficult provisions is greatly to be welcomed.
The conditions to be satisfied in TMA 1970 s 29 in order for HMRC to issue a discovery assessment are extensive and complicated. Serious difficulties arise because we must ignore the real situation and consider the position and assumed understanding of a hypothetical tax officer who has a number of uncertain characteristics. And these things will vary from case to case. It is no surprise that these provisions rarely provide any real protection for the taxpayer, which one might reasonably have supposed was their purpose.
There is one issue that was considered in the recent case of R Madsen v HMRC [2026] UKFTT 615 (TC) about which I would respectfully say that the First-tier Tribunal has injected a welcome breath of fresh air into the subject.
One critical condition of whether a discovery assessment can be issued is that ‘the officer could not have been reasonably expected on the basis of the information available to him before that time [the deadline] to be aware of the situation mentioned in subsection 1 above [that an assessment to tax is insufficient]’ (s 29(5)).
That of course gives rise to a lot of different judgments about what could reasonably have been expected, but it is made worse by the fact that the reference to ‘the information available to him’ does not mean what it says. Section 29(6) imposes a very restrictive meaning to the effect that even though HMRC may have absolutely 100% of all the information it could possibly require, all that information can be ignored if it was not provided by the taxpayer himself, or by a person acting on his behalf.
An important part of the judgment in Madsen dealt with exactly this point. The case in fact concerned SDLT which of course has its own tax code, but it is accepted that rules relating to discovery assessments are the same.
The taxpayer submitted an SDLT return which by itself was not regarded as being enough to make the hypothetical office aware of an insufficiency.
(In fact, HMRC had loads more information about the SDLT avoidance scheme used by the taxpayer, which, in real life would have been very important, but that information had not been provided by the taxpayer, or by a person acting on his behalf, so it could be ignored.)
The crucial issue was whether an explanatory letter written to HMRC by a third party specifically about the transaction could be taken into account.
HMRC said that the person writing the letter was not the registered agent and HMRC did not recognise him as a person acting on the taxpayer’s behalf – but the FTT said that this did not matter. There was no statutory requirement that HMRC had to ‘recognise’ the person. The letter was written at least partially on Mr Madsen’s behalf and that was enough to satisfy the condition.
Furthermore, the FTT considered that the information in the letter would have given the hypothetical officer sufficient information for the purpose of raising a discovery assessment.
This might be thought to be a close call because one can see how easily it could have gone the other way, but the application of common sense into these really difficult provisions is greatly to be welcomed.
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