How Far Back Can HMRC Go

An incoming visit from a taxman can be a shock and feel quite stressful for the recipient. Usually, you don’t hear from him unless something is amiss. Suppose HM Revenue & Customs suspects deliberate tax evasion. In that case, a tax investigation will be instigated for HMRC to claim money back and enforce any relevant penalties relating to rule-breaking.

If an HMRC tax investigation has been launched into your business, we hope to answer any concerns you may have here.

How long does a tax investigation take?

The length of an HMRC tax investigation can vary depending on your own individual case and can last well into several months. If a larger business is under investigation, it can take longer due to the data that will need to be investigated.

An average timeline for a small case aimed at an individual suspect is between three and six months. A serious, large-scale tax investigation can take as many as eighteen months to resolve.

Why would HMRC visit me?

If HMRC believes there are any discrepancies or errors in your tax returns (Self Assessment tax return), then they could launch an investigation. You could have made money outside of your regular employment under your own company, such as rental income or selling assets.

HMRC can take further action to reclaim any unpaid tax from your bank account and assets. Where a loss of tax involves offshore activity, like an offshore transfer, HMRC can assess the past 12 years to the end of the year.

What’s involved in a tax investigation, and how far back can HMRC investigate for tax?

HMRC will send a letter informing someone if they are looking into their tax return; this is the start of an HMRC tax investigation. This could be because of a clerical error, received an anonymous tip-off, or they’ve spotted inconsistent figures.

Usually, HMRC will request several documents for their investigation, including invoices, bank statements, and expense receipts, to help HMRC confirm if you’ve broken any tax laws when submitting your tax return.

It doesn’t matter if any errors or mistakes were accidental or deliberate. They will be investigated regardless, and HMRC can go back 4 years. If someone is careless when submitting tax returns, HMRC can go back 6 years at the end of the relevant tax year to investigate. However, if it’s a deliberate attempt to avoid paying tax, HMRC has the jurisdiction to go back up to 20 years.

If you’re an employee of a company being investigated, the employee will take care of your payments, removing what you owe HMRC from your paycheck.

Our advisors can assist you with investigations relating to innocent errors, as well as full tax investigation issues, should HMRC determine there has been any foul play on a larger scale.

What is the time limit for HMRC to open an enquiry?

HMRC has a time limit of 12 months from when the return was filed as long as that occurred within the required filing date for that year. They must give notice to the taxpayer within this 12-month time limit.

The Self Assessment tax return deadline is the 31st of January if you submit it online, so the form must accurately depict your income from the previous tax year.

What will HMRC be looking for during an enquiry?

HMRC may be looking into a single entry that looks suspicious or looking at various expenses in the profit and loss accounts. This means that investigations can vary dramatically regarding what HMRC is looking for during an enquiry.

How many years can HMRC go back into an investigation?

HMRC can even reopen previously settled tax returns for closed companies if a tax investigation unearths puzzling results. Time limits are usually 4 years which HMRC claims money back. However, if there is evidence of carelessness, HMRC can go back 6 years from the end of the accounting period or even 20 years for alleged deliberate tax avoidance.

What are the Rules Around How Far Back HMRC Can Investigate?

There are several rules in place that relate to how far HMRC can investigate. Firstly, there must have been evidence of incomplete or false disclosure that has resulted in tax loss. Any discoveries will determine how far back can HMRC can legally investigate. They cannot launch a discovery assessment without proof.

How does HMRC obtain the information to support a discovery assessment?

As cited in Schedule 36, Finance Act 2008, HMRC gather information expertly to support their tax investigation. They are not limited in terms of how far back they can request information related to returns and business records.

So what are the practical limits on how far back HMRC can get information?

HMRC must produce evidence that they have a genuine case where the return was careless or dishonest. This is because Schedule 36, FA 2008 doesn’t confirm time limits. Without an arguable case on HMRC’s side, they cannot investigate taxes that might not have been paid over four years in the past.

HMRC Discovery Assessments into Historical Tax Affairs

A term coined by HMRC, their ‘Discover Assessment’ is an assessment of an individual or company’s tax affairs that date back historically.

Suppose you receive a letter from HMRC relating to discovery assessments. In that case, this is because HMRC suspects you’ve either underpaid tax, you’ve received more tax relief than you should have, or they suspect deliberate tax evasion either by negligence, incomplete disclosure or fraud.

Get Started

If you’ve recently been contacted by HMRC relating to a tax investigation, even if they were innocent errors, it’s important to hire expert tax advisers to get all your ducks in a row and ensure you pay tax accurately going forward.

To speak with one of our specialist accountants about tax investigations or submitting your Self Assessment tax return click the button below.

Our advisers understand how HMRC investigate, even at a full-blown tax investigation level. If you’d like advice on filing an HMRC claim, company tax return, self assessment tax return, capital gains, landfill tax and excise duty, climate change levy, tax avoidance, or any other tax enquiry – we’d be happy to assist you.

Why TaxBite

TaxBite is a team of experienced chartered accountants passionate about making tax straightforward for our clients. Our tax advisors have helped many clients across various industries understand and process income tax, petroleum revenue tax, insurance premium tax, capital gains tax, stamp duty land tax, stamp duty reserve tax, and corporation tax and submit tax returns. We can also assist and ensure all our clients are prepared for tax investigations.

Tax investigations can be really stressful for companies and individuals. They can be costly, involve time and resources, and lead to HMRC tax investigation penalties and convictions.

Say goodbye to careless tax returns! Our team of accountants can help you ensure your tax returns are HMRC-approved and accurate and look after your general tax affairs.

Whether you’re a one-person limited company or part of a larger limited company, the advisors at TaxBite would be happy to help manage your accounts, self assessment returns, tax calculations, and other tax submissions.