COM23080 - Assessing: CTSA assessments: discovery determinations

This subject is presented as follows:

In what circumstances can you make a Discovery Determination?
Making a Discovery Determination
Example 

In what circumstances can you make a Discovery Determination?

A Discovery Determination is a determination of an amount shown on a return. It can only be issued where a return has already been delivered and the time limit for opening an enquiry into the return has expired or the enquiry has already been completed.

You can make a Discovery Determination if you discover that an amount is incorrectly stated in a return and may affect the tax

• Payable for another AP of the company

• Liability of any AP of another company

A Discovery Assessment is only appropriate when a ‘discovery’ leads to additional tax liability on the company for that AP.

The rules for, and restrictions on, making Discovery Determinations are similar to those applying to Discovery Assessments.

In practice, where a return has been delivered and the time limit for opening an enquiry into that return has not yet expired, you will normally deal with matters by opening an enquiry rather than issuing a Discovery Assessment or Determination.

Where you need to make a Discovery Determination for a particular AP, you will always need to consider what consequential action may be needed for another AP of the company, or AP of another company.

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Making a Discovery Determination

You cannot make a Discovery Determination using COTAX.

If you discover that an amount is incorrectly stated in a company’s return and affects the tax payable for another AP of the company, or the tax liability of another company

• Make a Discovery Determination on the company by writing to it, setting out the amount which in your opinion ought to have been stated in the return

If the Discovery Determination means that a return needs to be amended, or a Discovery Assessment made, for

• Another AP of the company

• An AP of another company

• • Use Function RAMA (Record / Amend Assessment) to amend or assess for the relevant AP. For more information see subject ‘Discovery Assessments’ (COM23070) in this section

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Example

X Ltd delivers its return and self assessment for the AP ended 31/12/2000 by the filing date. The return shows the following entries:

X Ltd carries back losses of £4,000 to its AP ended 31/12/1999. It also consents to the surrender of losses of £6,000 to Y Ltd, a grouped company, for the AP ended 31/12/2000.

In September 2003 you discover that X Ltd has unreported profits of £15,000 for its AP ended 31/12/2000. By then, the Para 24(2) time limit for opening an enquiry has expired.

Action - X Ltd

• You make a Para 41(2) Discovery Determination, by writing to the company, setting out the amount which, in your opinion, ought to have been stated in the return. That is

Note: Subject to any appeal under Para 42(3) against the Discovery Determination, X Ltd is now obligated, under Para 75(3), to write to both Y Ltd and HMRC, confirming that it has withdrawn its notice of consent to the surrender of losses. If X Ltd fails to do that, you may issue a Para 75(4) direction, which is appealable under Para 75(7), to X Ltd that the original notice of consent to the surrender of losses of £6,000 to Y Ltd is ineffective. You must also send a copy of that direction to the claimant company Y Ltd.

• You use Function RAMA (Record / Amend Assessment) to make a Para 41(1)(b) Discovery Assessment for the AP ended 31/12/2000 in the amount which, in your opinion, ought to be charged to make good the loss of tax to the Crown. That is

• You use Function RAMA again to make a Para 41(1)(c) Discovery Assessment for the AP ended 31/12/1999 to recover excessive loss relief carried back of £4,000

Action - Y Ltd

• Under Para 75(6), Y Ltd must, if it can, amend its return for the AP ended 31/12/2000 so that it is consistent with the Para 75(4) direction sent to X Ltd. However, it cannot do so as it is now September 2003 and the Para 15(4) time limit for amendment was 31/12/2001
• You should therefore make a Para 76 assessment to tax in the amount which you think ought to be charged to recover the excessive group relief

• • You cannot make this assessment in COTAX
  • Use a SEES assessment set to make the assessment manually. You can get the SEES 310(Z) assessment set at Excel > SEES > Forms and Letters > under the ‘SAFE’ category

• The particulars to enter on the assessment are ‘Paragraph 76 Schedule 18 Finance Act 1998 assessment to recover excessive group relief’. Show the tax as payable NOW.

• • Details of the assessment
  • Date from which interest will run and
  • SAFE charge type

For a list of forms relevant to this subject, see COM23011.

For a list of functions to use in particular situations, see COM23012.

For legislation applying to this subject, see COM23013.