Where HMRC discover that tax has been under-declared it can reopen as many as 20 of the previous years.
When HM Revenue & Customs thinks that a tax return is incorrect, it can assess additional tax going back: 4 years in cases of innocent error; up to 6 years in cases of failure to take sufficient care (aka carelessness); and 20 years to assess deliberate errors. Those time limits apply to Corporation Tax, Income Tax, Inheritance Tax, PAYE, and VAT.
Where HMRC are re-opening years due to careless or deliberate errors then the onus of proof is on the taxman. This not only applies to errors caused directly by the taxpayer, but also errors due to someone acting on the taxpayer’s behalf.
Since the 2019 Finance Act the taxman will be able to go back into even more years in cases of careless errors where there is some form of “offshore” connection: even in cases of innocent error. Offshore matters could include: undeclared takings deposited in a non-UK bank account; disposal of property outside the UK; non-declaration of foreign sourced income (including bank interest and dividends); distributions from trusts.
In order to assess Income Tax, Inheritance Tax, PAYE, and VAT connected to offshore matters, HMRC will be able to go back up to 12 years – even in cases of innocent error (i.e. an extra 8 years!). The current 20 year time limit for it to assess deliberate errors would remain in place.
The legislation is not retrospective. The new additional years will come onstream one year at a time. So the earliest years which HMRC can assess under the new rules are: from 2013-14 onwards for careless behaviour; and from 2015-16 onwards for errors despite taking reasonable care (aka innocent errors). HMRC will be able to assess those years until 6 April 2027, when the earliest years will drop out of contention one year at a time.
The extended time limits do not apply to Corporation Tax.
Interest and penalties
Where additional tax is assessed, HMRC also always charge interest on that tax.
Where an incorrect Tax Return is concerned, penalties can only be charged in cases of careless or deliberate behaviour. For errors wholly related to onshore matters, HMRC can charge penalties equal to up 100% of the tax previously undeclared.
For errors related to offshore matters penalties can be as high as 300% of the under-declared tax; plus 10% of the value of the relevant asset.
What does this mean for me?
If you are subject to an enquiry by HMRC, then you need to be aware of how far back HMRC can go, and the massive cost in terms of tax, interest and penalties that can follow.
How can Lynam Tax Enquiry and Disclosure Experts help me?
HMRC’s assertions regarding the amount of underpaid tax, and the number of years involved, are not always correct. Our Tax Enquiry Specialists have a huge amount of experience in managing HMRC enquiries. Frequently, we are able to demonstrate to HMRC that their initial findings are incorrect, or exaggerated. This can significantly reduce the number of years involved: massively reducing the overall bill from the taxman.
HM Revenue and Customs investigators are highly trained, and frequently very experienced. You need dedicated, experienced, and committed experts on your side.
*For a free, private, no obligation consultation, call today:
Paul Lynam: 0845 643 9997
Andrew Nutbrown: 07718 778710