Discovery Assessments and R&D Tax Relief – What You Need to Know
HMRC’s relentless R&D tax relief claim compliance activity shows little sign of abatement. A common misconception amongst claimant companies is that once the 12-month statutory enquiry window has elapsed, the claim is considered ‘safe’. Whilst this can be true, a recent First Tier Tribunal (FTT) case saw HMRC challenging a claim that was outside of the statutory 12-month window. Although HMRC was unsuccessful, it underlined the importance of understanding the concept discovery assessments and how taxpayers can protect themselves from HMRC’s discovery powers.
What is a Discovery Assessment?
A discovery occurs when an officer of HMRC reaches a conclusion or forms an opinion that there is an insufficiency of tax. HMRC has the power to re-open previous years of assessment if it discovers an under assessment that results in a loss of tax. This conclusion/opinion must be a reasonable belief.
What Fault or Behaviours can Prompt a Discovery Assessment?
HMRC cannot simply use discovery assessments as a ‘backup’ for when it has failed to issue an enquiry on time (i.e., within the 12-month statutory window). However, if HMRC takes the view that the taxpayer has made an insufficient disclosure, or has acted carelessly or deliberately, it has the power to issue a discovery assessment. The time limits are as follows:
Insufficient disclosure – HMRC can go back up to 4 years.
Careless conduct – HMRC can go back up to 6 years.
Deliberate conduct/failure to notify liability – up to 20 years.
Discovery Assessment and R&D Tax Relief Claims
Given HMRC’s widespread compliance campaign against claims for R&D tax relief, it is unsurprising that discovery assessments have become a valid concern for claimant companies. In particular, the notion of insufficient disclosure is a crucial concept where R&D claims are concerned, given the nuanced nature of the relief. In May 2025, a FTT case was heard about this very subject.
In Realbuzz Group Ltd v HMRC [2025 UKFTT 00493 TC], the taxpayer appealed against a discovery assessment issued on 1 June 2023 disallowing a R&D tax relief claim for £335,452.57 for the accounting period ended 30th April 2020 (which was made in an amended CT return received on 31st March 2021).
Shortly after the amended return was filed for the 2020 accounting period, Realbuzz filed a tax return (and claim for R&D relief) for the 30th April 2021 accounting period. HMRC opened an enquiry into the 2021 claim. 18 months later, HMRC closed the enquiry into the 2021 claim, denying all relief. At the same time, HMRC signalled its intention to raise a discovery assessment for the 2020 claim (which was now well outside of the statutory enquiry window). It was asserted that some of the 2021 projects also formed part of the 2020 claim, therefore the inaccuracies identified in 2021 would have been present in 2020.
Soon after, HMRC issued the discovery assessment for the 2020 claim. The assessment totalled £335,452.57 – an eye watering sum of money relating to a claim which, given that the enquiry window had expired, the company likely regarded as being ‘safe’.
The Importance of the R&D Report
Realbuzz had submitted an accompanying R&D report with the 2020 claim. It was argued by the company that the report provided ‘protection’ from any discovery assessment, under the provisions of paragraph 44(1) Schedule 18 Finance Act 1998. In layman’s terms, paragraph 44(1) states that a discovery assessment can only be made if an officer of HMRC could not have been reasonably expected, on the basis of the information made available, to be unaware of the insufficiency of tax.
The R&D report submitted by Realbuzz was information made available to HMRC. The case therefore centred on whether or not the company had provided HMRC with sufficient disclosure about the claim and its makeup, to prevent HMRC issuing a discovery assessment.
It is worth noting that Paragraph 44 Schedule 18 Finance Act 1998 is carefully constructed to provide protection to the taxpayer in situations where the taxpayer has provided sufficient disclosure to HMRC. Discovery powers are not a ‘get out of jail card’ for HMRC, and if the taxpayer has done everything that is reasonably required to provide HMRC enough information about the tax position, paragraph 44 provides protection.
The FTT examined Realbuzz’s disclosure to HMRC in some detail, and it was ultimately determined that the 2020 R&D report did provide sufficient disclosure to HMRC. Judge McKeever held, ‘We have decided that the hypothetical officer should reasonably have been aware at the LDE (Last Date of Enquiry) of the excessive claim for R&D relief and the consequent insufficiency in tax. Accordingly, HMRC is not entitled to raise a discovery assessment.’
It was stated at the FTT that on reading the 2020 R&D report provided by RealBuzz, ‘It would have been obvious that some projects/sub-projects did not qualify even if others might have. As there was a single inaccuracy being a single excessive claim for relief, the hypothetical officer only had to conclude that the claim was excessive, he did not have to conclude that the entire claim was non-qualifying. Nor did he have to quantify the amount of the insufficiency of tax’.
Realbuzz’s appeal against the 2020 discovery assessment was therefore upheld.
Key Takeaways
The Realbuzz case is likely the first of many discovery assessment cases relating to R&D tax relief claims that will go to FTT. Ay YesTax, our enquiry resolution service has seen incidences of insufficient disclosure and carelessness. These behaviours can result in discovery assessments being issued for claims that are now outside of the statutory 12-month window.
Perhaps the most important lesson to be learned from Realbuzz is the protection afforded by a well-constructed and detailed R&D report. In the absence of a report, it is unquestionable that HMRC would have been able to issue a discovery assessment for the 2020 claim. From August 2023, claimant companies have been required to submit an Additional Information Form (AIF). However, at YesTax, we believe that the AIF provides insufficient detail to give adequate protection from discovery assessments. It is our strong recommendation that an accompanying report is produced, filling the obvious gaps of the AIF. In addition, the report should provide a full breakdown of claimed expenditure. It is widely known that the AIF requires minimal detail of costs claimed. A detailed schedule of costs, over and above that what is required by the AIF, serves to provide additional protection from HMRC’s discovery powers.
Finally, the Realbuzz case reinforced our view that discovery assessments can and should be challenged. Paragraph 44 Schedule 18 Finance Act 1998 provides protection to the taxpayer, therefore discovery assessments should always be contested where information was made available to HMRC. Where HMRC use careless or deliberate conduct to justify a discovery assessment, challenges should also be made where justified.
If you or your client have received a discovery assessment from HMRC, and you would like to discuss the matter, please contact us at hello@yes.tax
YesTax. Positively Better.