HMRC sometimes issues an assessment shortly before a time limit expires, while it is still investigating or while the law is being litigated, so that the tax is not lost if it later turns out to be due. For income tax, capital gains tax and corporation tax there is no special category of protective assessment: it must meet every normal condition, including a genuine discovery. The taxpayer should appeal within 30 days, set out why the assessment is invalid or excessive, and apply in the same letter to postpone the tax.

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What does HMRC mean by a protective assessment?

The phrase is used informally for an assessment raised to stop a year falling out of time. HMRC’s VAT Assessments and Error Correction manual at VAEC5510 states plainly that there is no legal distinction between a protective assessment and any other assessment, although the courts have used the term. In VAT, HMRC reserves the label for assessments made to protect tax while litigation continues, which are only enforced if HMRC ultimately wins.

For direct taxes HMRC is more cautious still. The Enquiry Manual at EM2032 says that assessments made shortly before a time limit expires are sometimes incorrectly called protective, and tells caseworkers to avoid the term because it suggests the assessment was made only to keep the matter open while enquiries continue.

Can HMRC assess just to keep a year open?

No. HMRC’s own guidance at EM3251 says the legislation does not allow it to make protective assessments merely to extend time limits to investigate a position, or in case an officer later discovers a loss of tax. An officer should not assess if they merely suspect a loss of tax, or to keep a year open while they look into a risk.

What the officer can do is assess with an approaching time limit in mind where they have already discovered a loss of tax for that year, or where they can rely on the presumption of continuity from proven omissions in other years. A discovery, as EM3231 explains, must be more than mere suspicion: the officer needs a reasonable belief that an insufficiency exists. The amount must be estimated to the best of the officer’s ability on the available facts (EM2032), and EM3251 allows best judgement where the exact figure cannot be identified.

So the honest description of a so called protective assessment in direct tax is a discovery assessment made under time pressure on incomplete facts. That is lawful if the conditions are met, and challengeable if they are not.

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Why would HMRC raise one while the facts are unclear?

The usual reasons are:

  • Time limits are running. Under section 34 of the Taxes Management Act 1970 (TMA 1970) the normal limit for an income tax or capital gains tax assessment is 4 years after the end of the tax year, extended to 6 years for careless and 20 years for deliberate losses by section 36. Paragraph 46 of Schedule 18 to the Finance Act 1998 sets the same limits for companies. An enquiry into a later year can uncover a problem when an earlier year is close to the 4 year limit.
  • Litigation is under way. VAEC5520 explains that a court decision is not fresh evidence of facts and does not extend assessing time limits, so where HMRC is contesting a judgment it may assess litigants, followers and other businesses with the same facts to avoid the tax being lost if it eventually wins. Our page on lead cases and related appeals explains how follower appeals are handled.
  • The right charge is uncertain. EM3269 allows alternative assessments, for example where it is unclear whether a receipt is income or a capital gain. HMRC cannot charge both, but it may pursue both as alternatives and leave the tribunal to decide.

What should the assessment and covering letter tell you?

EM3258 sets out HMRC’s best practice for the explanation letter. It should say that the officer has concluded there is a loss of tax, explain what discovery was made and when, state the legislation used (for example section 29 TMA 1970), and tell the taxpayer about the right to appeal, to ask for a review and to apply to postpone the tax. If extended time limits are used, the letter should explain why. If the letter does not say what was discovered and when, ask. The answer often shows whether there was a real discovery or just an intention to look further.

How should the taxpayer appeal?

Section 31A TMA 1970 requires the appeal to be in writing, to the officer who gave the notice of assessment, within 30 days after the date of the notice, and to specify the grounds. For a company, paragraph 48 of Schedule 18 to the Finance Act 1998 sets the same 30 day limit. Typical grounds for an assessment raised while the facts are unclear are:

  • no discovery was made, only a suspicion;
  • a return was filed and neither the careless or deliberate behaviour condition nor the information condition in section 29(4) and (5) is met;
  • the assessment is out of time, because the loss was not careless or deliberate and the 4 year limit had passed;
  • the amount is excessive.

Sections 29(8) and 34(2) say objections about the conditions and the time limit can only be made on an appeal against the assessment, so they must be raised in the appeal itself. Our guide to writing grounds of appeal covers the drafting.

How do you postpone the tax?

Appealing does not stop the tax being due. Section 55(2) TMA 1970 makes the tax payable as if there had been no appeal unless it is postponed. Under section 55(3) the appellant applies in writing to HMRC within 30 days for a determination of how much should be postponed, stating the amount believed to be overcharged and the grounds for that belief. If HMRC does not agree, the application can be referred to the tribunal within 30 days of HMRC’s decision. A later application is allowed under section 55(3A) where circumstances change, and any agreement with HMRC must be in writing or confirmed in writing (section 55(7)). Tax not postponed becomes payable as though charged by an assessment issued on the date of the determination. EM3258 reminds officers to tell taxpayers that interest is charged when tax is paid late, so postponement is not free if you eventually lose. See postponing tax while an appeal is pending for the detail.

For a VAT assessment raised to protect tax during litigation, VAEC5550 says there is no requirement to pay the assessment in order to appeal, and the appellant should tell the tribunal that HMRC has agreed to ask for payment only if its appeal is upheld.

What happens after the appeal?

Under section 49A TMA 1970 the appellant can ask for a statutory review, accept a review offered by HMRC, or notify the appeal to the tribunal. Many assessments raised on incomplete facts are later settled by agreement under section 54 once the enquiry finishes; that agreement has the same effect as a tribunal decision unless the taxpayer gives written notice within 30 days that they wish to resile from it. HMRC’s own investigation guidance at TTOG4425 warns investigators to consider their next step when the taxpayer appeals and applies for postponement, because an assessment they are not ready to defend takes them no further forward.

A worked example

Illustration only. In September 2026 HMRC is enquiring into Sam’s 2024 to 2025 return and finds unexplained bank deposits. It suspects similar deposits in 2021 to 2022, but has no evidence for that year yet, and the normal 4 year limit for that year ended on 5 April 2026. HMRC issues an assessment for 2021 to 2022 for an estimated £8,000, relying on the 6 year careless limit.

Sam’s adviser appeals within 30 days on the grounds that no discovery was made for 2021 to 2022, that HMRC cannot show careless behaviour for that year, and that the amount is a guess. In the same letter she applies to postpone the whole £8,000, explaining why Sam believes he is overcharged. If HMRC later proves omissions with no ready explanation and an unchanged lifestyle, the presumption of continuity may support the assessment; if not, the assessment should be discharged.

What mistakes should you avoid?

  • Ignoring it because it looks provisional. Once the 30 days pass, an appeal needs HMRC’s agreement or the tribunal’s permission under section 49 TMA 1970, however speculative the assessment was.
  • Appealing without postponing. Without a section 55 application the tax is collectable.
  • Arguing only about the figure. The validity points (discovery, conditions, time limits) are for HMRC to prove and are often decisive.
  • Assuming delay helps. The Supreme Court in HMRC v Tooth [2021] UKSC 17 held that a valid discovery does not become stale with time; see discovery assessments after Tooth.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.