CCM13170 - Discovery Decisions: Income tax liability revised AND fraud/neglect established

You may consider, in a particular case, that you have grounds for making a discovery decision based on both S20(1) (revision of income tax liability) and S20(4) (fraud or neglect). If so, you may be able to make a discovery decision up to five years after the end of the year, rather than up to one year after the date on which the income tax liability was revised. You should not, however, seek to establish fraud or neglect purely so that you can extend the time limit for making your discovery decision. Nor should you normally delay making your discovery decision, unless there are particular reasons for doing so.

Where both

• the income tax liability has been revised, and
• you consider that you could establish fraud or neglect

you should normally make your discovery decision before the earlier of the two time limits. This will avoid the potential for the claimant(s) to dispute your right to make a discovery decision on the grounds of fraud or neglect.

Example

Mark is a self employed DJ, who claimed and was awarded tax credits for 2003/2004. He files his 2004 SA return on 28 January 2005. No SA enquiry is made into the 2004 return, so the NTC enquiry window for 2003/4 closes on 31 January 2006.

Mark’s 2005 SA return is subsequently taken up for enquiry on 27 July 2006 and, as part of that enquiry, an SA discovery assessment is made on 15 January 2007 to increase his self employed income for 2003/2004.

As a consequence of the SA discovery assessment, you need to make a discovery decision for 2003/2004. If your reason for making the discovery decision is solely because Mark’s income tax liability for that year has been revised, you will have one year from the date of the revision to make your decision. As the revision (the SA discovery assessment) was made on 15 January 2007, you would have to make the NTC discovery decision by 15 January 2008.

If you had established fraud or neglect on Mark’s part, you would have until 5 April 2009 to make the discovery decision – though in practice, you should still normally make it by the earlier date of 15 January 2008. In this example, it is likely that you would be able to establish fraud or neglect, as the making of the SA discovery assessment as part of an SA enquiry is likely to indicate that the taxpayer has committed an offence.