Where HMRC discover that tax has been under-declared it can reopen as many as 20 previous years.
This not only applies to errors caused directly by the taxpayer, but also any caused by someone acting on the taxpayer’s behalf – such as an accountant who prepared or filed the Tax Return containing the error.
You can appeal against these assessments. Where HMRC re-open years due to careless or deliberate errors then the onus of proof is on the taxman.
There are different rules depending on whether the additional tax relates to an onshore, or an offshore, matter. 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.
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 it has 20 years to assess deliberate errors. Those “assessing time limits“ apply to Corporation Tax, Income Tax, Inheritance Tax, PAYE. They are similar for VAT, except that the careless time limit is also 4 years.
Since the 2019 Finance Act the taxman can go back into extra years in cases of innocent or careless errors – where there is some form of “offshore” connection.
In order to assess Income Tax, Inheritance Tax, PAYE, and VAT connected to offshore matters, the normal rolling 20 year time limit will still apply to cases involving Deliberate Errors in Tax Returns and all cases of Failure To Notify (where there is no Reasonable Excuse). But in cases of Innocent or Careless Errors (made by the taxpayer or any agent) the usual 4 and 6 year time limits have effectively been frozen: e.g. 2011/12 to 2013/14 may be assessed up to 5 April 2021.
The extended offshore time limits do not apply to Corporation Tax.
Failure To Notify
The time limits above apply where a Tax return was sent to HMRC but was later found to be incorrect. If no tax Return was issued, and you haven’t told the taxman about a source of taxable income, then that is known as Failure To Notify. In cases of Failure To Notify, where there is no Reasonable Excuse, the assessing time limit is 20 years.
Interest and penalties
Where additional tax is assessed, HMRC also always charge interest on that tax: in both offshore and onshore cases.
Where an incorrect Tax Return is concerned, penalties for onshore matters can only be charged in cases of careless or deliberate behaviour. See further details on our page dealing with Penalties For Incorrect Tax. For errors in Tax Returns related to offshore matters see further details on our page dealing with Penalties For Offshore Matters.
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