Enquiry or discovery what is the difference

When HMRC comes knocking on your door, the manner in which they arrive matters significantly. The distinction between an enquiry and a discovery assessment is crucial for any business owner or self-employed individual in the UK, as each carries different implications for your finances and timeline. At Severn Accounting, we often explain this to our Worcester-based clients because understanding the difference can help you prepare appropriately and know your rights under UK tax law.

What is a Tax Enquiry?

An enquiry (sometimes called an “examination”) is HMRC’s formal way of investigating a tax return they’ve already received and accepted. It’s essentially a review of the figures you’ve submitted, and it’s a routine part of the tax system. HMRC has powers under Taxes Management Act 1970 to open an enquiry, but there are strict time limits.

Generally, HMRC must open an enquiry into a Self Assessment return within four years of the 31 January following the end of the tax year in which the return was filed. For example, if you submitted a 2023/24 return by 31 January 2024, HMRC typically has until 31 January 2028 to open an enquiry. However, if there’s been careless behaviour, this extends to six years; if there’s deliberate behaviour, there’s no time limit.

When HMRC opens an enquiry, they’ll issue a formal letter (called a “Notice of Enquiry”) and may ask for additional documents, explanations, or evidence to support the figures you’ve claimed. During this process, you have the right to know what they’re investigating and to respond to their questions.

What is a Discovery Assessment?

A discovery assessment is a different beast entirely. This occurs when HMRC discovers that tax has been under-assessed—meaning you’ve paid less tax than you should have—and they issue a new assessment to collect the shortfall. The critical point is that HMRC doesn’t need to open a formal enquiry to issue a discovery assessment; they can do so if they have reason to believe an assessment is incomplete.

The time limits for discovery assessments are tight. HMRC must normally discover an under-assessment within four years of the end of the relevant tax year (six years for careless behaviour, and unlimited for deliberate behaviour). Once discovered, they can assess the unpaid tax immediately without the formal enquiry process.

The key difference in practice is this: with an enquiry, you know what HMRC is investigating and can engage with them; with a discovery assessment, HMRC may have already made their determination and is simply demanding payment.

The Procedural Differences

The process differs significantly between the two. With an enquiry, HMRC must follow specific procedural rules. They’ll request information, you’ll have time to respond, and there’s usually an opportunity to reach agreement or dispute their findings through the formal appeals process. The enquiry formally closes when HMRC issues a closure notice, which either confirms the original assessment or adjusts it.

A discovery assessment, by contrast, is more abrupt. HMRC issues an assessment for the additional tax owed, and you then have 30 days to appeal. You can only challenge a discovery assessment if you can demonstrate that HMRC doesn’t actually have sufficient grounds to make one—a higher bar than contesting an enquiry finding.

Practical Implications for Your Business

From a practical standpoint, receiving an enquiry notice should prompt you to gather supporting documentation and consider whether you need professional advice. It’s not necessarily a sign that something’s wrong—HMRC routinely sample returns. However, if your tax return contains claims that are unusual, high-value, or particularly complex (such as substantial trading losses, capital allowances, or specialist reliefs), you should be prepared to justify them thoroughly.

A discovery assessment, conversely, typically means HMRC believes they’ve already identified a problem. This is more serious and usually warrants immediate professional intervention.

Protecting Yourself

Accurate record-keeping is your best defence against both enquiries and discovery assessments. Keep all supporting documentation—invoices, receipts, bank statements, payroll records—for at least six years. If you’re filing complex returns with significant claims, it’s worth having your accountant review the figures before submission.

For tailored advice on tax enquiries, discovery assessments, or to ensure your returns are robust, contact Severn Accounting — we’re here to help.