The presumption of continuity in HMRC assessments

The presumption of continuity lets HMRC argue that where omissions in one year are proven, have no ready explanation, and nothing in the business or the taxpayer’s way of life has changed, similar omissions probably happened in other years too. It is an inference, not a rule of law: HMRC’s own guidance says it does not justify assessments on its own, and a taxpayer can answer it with evidence that the earlier years were different.

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What is the presumption of continuity?

HMRC’s Enquiry Manual at EM3236 explains that evidence of omissions from one or more years’ returns can allow an officer to infer that the omissions continued in other years. In the absence of evidence to the contrary, under declarations in some years can be taken as an indicator of under declaration in others, and the officer can make discovery assessments on that basis under section 29 of the Taxes Management Act 1970. HMRC relied on Jonas v Bamford [1973] STC 519 for the principle in Danapal v HMRC [2023] UKUT 00086 (TCC).

EM3236 lists the two situations in which it usually arises:

omissions are proven for the enquiry year but earlier accounts have not been investigated, for example where a business economics exercise has been used for one year only;
omissions are proven for some years but not others, for example where capital statements have been used.

When can HMRC rely on it?

EM3236 sets limits. If HMRC has found only one omission in one year and the taxpayer gives a reasonable explanation for it, HMRC would not be in a position to argue for additions to other years on that fact alone. Where there is only one under declaration in one year, additional evidence is needed before concluding that other years are also wrong. But where omissions are proven, have no ready explanation, and the business and way of life of the taxpayer have not changed, HMRC will likely be able to argue for similar additions in other years. Assessments should not normally be raised until HMRC has a case both for the current year’s liability and for continuity.

The earlier years still have to be opened lawfully. EM2001 says officers can only reopen earlier years if they have made a discovery, that pursuing small amounts into earlier years is not an effective use of time, and that there is no point in creating a debt where the person has no assets and has ceased trading with no prospect of income. If HMRC decides to reopen earlier years it must tell the taxpayer and agent.

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How far back can HMRC go?

The time limits in TMA 1970 apply year by year:

Circumstances	Assessment may be made up to	Provision
Ordinary case	4 years after the end of the tax year	Section 34(1)
Loss of tax brought about carelessly	6 years after the end of the tax year	Section 36(1)
Loss of tax brought about deliberately, or attributable to a failure to notify chargeability under section 7	20 years after the end of the tax year	Section 36(1A)

So continuity alone cannot carry an assessment beyond 4 years: HMRC must also show careless or deliberate behaviour, or a failure to notify, for each extended year. In Danapal it was common ground that the burden of proving that the discovery conditions were met and that the assessments were in time rests with HMRC. See how far back HMRC can go for the wider rules.

How does HMRC put a figure on earlier years?

EM2010 says the officer should first establish the true profits of the enquiry period as accurately as possible, because whatever is agreed sets the pattern. EM2011 says there is unlikely to be enough information to build business models for earlier years, so a detailed review will usually mean capital statements; otherwise the enquiry year adjustment is scaled back.

EM2012 describes scaling back by reference to the Retail Prices Index where the pattern of trading has been reasonably consistent. HMRC’s own example is a trader taking £50 a week from the till, which can simply be scaled back for inflation. Where money was taken irregularly, the adjustment may be converted into a proportion of declared turnover and the same proportion added back in earlier years. EM2020 tells officers not to roll several years’ understatements into one year’s adjustment, because the correct profit should be assessed in each year, with interest and penalties for each year.

Who has to prove what?

Once assessments are made and appealed, EM3236 says the onus falls on the appellant to displace them, and under section 50(6) TMA 1970 the tribunal reduces an assessment only if it decides the appellant is overcharged. But EM3236 also says the presumption alone does not justify increases in assessments: the onus is on HMRC to produce evidence. Where the appellant’s evidence suggests the accounts are right but does not show a change in practice, the presumption can only cast doubt on that evidence; it does not replace the need for HMRC to provide evidence of its own.

Danapal shows the limit in practice. The First tier Tribunal inferred a pattern of deliberate under reporting in earlier years from one year of limited evidence and said it was for the taxpayer to rebut it. The Upper Tribunal held that this was an improper approach to the burden of proof. HMRC had not produced earlier years’ bank statements, had not analysed the source of payments, and bore the burden of proving deliberate behaviour. All the assessments were found to be out of time and were discharged.

By contrast, in Brittain v Gibb (59 TC 374, EM3710) the Commissioners, having rejected the accounts, were entitled to base estimates for earlier years on the one year examined in detail. The difference lies in the quality of the evidence that the records were unreliable.

How can a taxpayer rebut the presumption?

By showing that the earlier years were not like the enquiry year. HMRC’s guidance points to what works:

A reasonable explanation for a one off error. EM3236 accepts that this defeats additions to other years where only one omission has been found.
A change in practice. A new till system, bookkeeper, premises, pricing or product range. EM2012 warns officers that a simple inflation adjustment assumes steady trading and prices moving broadly with the index, so evidence that staff doubled or prices were held for five years means it should not be used.
Incorporation. EM3236 stresses that a company and the sole trader or partnership before it are separate legal persons, citing Rose v Humbles (48 TC 123), so evidence against one is not necessarily evidence against the other.
Private side evidence. EM2014 tells officers to ask whether the taxpayer could realistically have spent the extra income implied, and not to impose unbelievable figures.

Worked example

Illustration only. In October 2026 an enquiry into a café owner’s 2023 to 2024 return proves £6,000 of cash takings were not recorded, and the owner admits taking cash from the till each week. HMRC proposes similar additions, scaled back for inflation, for 2019 to 2020 through 2022 to 2023.

The owner shows that until March 2022 every sale went through a card only system that recorded each transaction, and produces those records. That is evidence of a change in practice, so continuity is weak for 2021 to 2022 and earlier.
For 2022 to 2023 nothing changed, so an addition is likely to stand unless other evidence is produced.
Assessments made in October 2026 for 2021 to 2022 and earlier fall outside the 4 year limit, so HMRC would also have to prove careless or deliberate behaviour for each of those years.

What mistakes do taxpayers make?

Accepting a single global addition without checking which years and time limits it really covers.
Offering no evidence about earlier years, leaving the inference unanswered.
Assuming continuity shifts the burden on behaviour. Danapal confirms HMRC must prove careless or deliberate conduct to use the extended time limits.
Forgetting that each reopened year can carry its own penalty; see penalties for errors in tax returns.

EM2001 says HMRC normally works towards a contract settlement covering earlier years. Where agreement is not possible, disputes go to statutory review or the tribunal.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.