Time Limits for Assessments
If HMRC wants to collect extra Tax from you or your business for earlier years, as part of a tax enquiry, it needs to be in a position where the law allows it to issue a formal "Tax Assessment". There are strict legal time limits in which the Tax Inspector can issue an Assessment to you. But in some cases HMRC can claim extra tax off you for the last 20 years!
The basic rules for PAYE, Income Tax, Capital Gains Tax and Corporation Tax and VAT are "behaviour" driven. If the Tax Inspector believes you have under-declared your tax for previous years they can make further assessments - as long as they do so within the following time limits. And those limits depend on what behaviour they think caused the under-declaration.
HMRC Deadlines to Claim More Tax: Errors in Tax Returns
Where the taxman reasonably demonstrates (on the balance of probabilities) that a Tax Return is likely to be incorrect, then HMRC can re-open a number of earlier years: dependent on the behaviour of the taxpayer, or somone acting on their behalf, that led to the error. The relevant years and behavours are:
- 1 year: Where HMRC have opened an Enquiry within the statutory time limit (normally a year from when it was filed) they can normally collect any additional tax that they can prove is due; regardless of the reason for the under declaration; and can do so even if a number of years have passed from the opening of the Enquiry to the time they prove the extra tax is due.
- 4 years: the Normal Time Limit, in all cases, even innocent error. But the taxman has to show that he has made a Discovery. Usually if more tax would have been due if the Return had been correct originally, then a Discovery has been made. But Discovery can be a complex area - and successful challenges can sometimes be made;
- 6 years: Extended Time Limit for Errors caused by Failure to Take Sufficient care (aka Carelessness) (except for VAT where the limit is 4 years). The onus is on the tax officer to prove that tax was understated as a result of failure to take sufficient care. This is another area where challenges can succeed;
- 20 years: Extended Time Limit for Deliberate Errors. The onus is on the taxman to prove that they have made a Discovery and that the relevant behaviour was Deliberate: in other words, fraudulent. This is a key area where our challenges are often successful - and where significant amounts of tax, interest, and penalties can be at stake.
HMRC Deadlines to Claim More Tax: Failure To Notify
- 20 years: Normal Time Limit for: Failure To Notify chargeability to tax (i.e. you had a tax liabilty for a tax year but you did not get issued with a Tax Return, and you did not tell HMRC you had tax to pay by 5 October following the tax year end; also Failure to Register for VAT; and Failure To Notify tax avoidance schemes.
- Without reasonable excuse HMRC would normally be able to assess back 20 years: However, there is an overriding limit in that to assess 2008/09 and earlier the loss of tax must be attributable to Negligent conduct (aka failure to take sufficient care).
- For Failure to Notify ("FTN") there is a let out if you have a "Reasonable Excuse" and then you also notified HMRC promptly once the circumstances of that excuse ended. Reasonable Excuse claims succeed in only very limited situations.
Working Out The Deadlines
The simple way to calculate the so-called assessing time limit is to add say 4 (or 6, or 20) years to the tax year where HMRC allege that more tax is due. For example, if HMRC think you owe more tax for the year 2017/18 as a result of the careless behaviour of you or your agent, they have to issue a formal assessment before 6 April 2022 - or else they are “out of time”. During a tax enquiry the Inspector may issue a so-called “Protective Assessment” to stop the year going out of time. For example, a Tax Enquiry may have started in July 2019 into the 2018 Tax Return - which had been filed in October 2018. If HMRC prove the return was incorrect they can collect extra tax for 2017/18: even if they don't conclude their investigation until say, May 2022. At April 2020 the year 2013/14 would normally go out of time (on the basis of careless behaviour). So in early 2020 the inspector might issue a protective assessment for 2013/14, even though the Tax Investigation is not finished. The Tax Compliance Check might not be concluded until say May 2022; more than 6 years after the end of 2012/13. But as the assessment for 2013/14 was issued within the 6 year window, then that year would still be included in the investigation settlement (although, of course, the actual figures assessed could still be appealed and negotiated).
Interest, Penalties, Offshore Matters
Where there is additional tax to pay, then interest is always charged on that tax.
From September 2018 to 5 April 2021 they were been different (and generally harsher) assessing time limits where offshore matters are concerned. These are covered in our Offshore Disclosures section.
Where the taxman demonstrates that tax had been underdeclared as a result of your carelessness or deliberate behaviour: then tax-geared penalties will be charged. For more information about this see our separate pages regarding Onshore Penalties and Penalties for Offshore Matters.
How Can Lynam Tax Dispute Specialists Help me?
Is the taxman alleging you owe extra tax? Lynam Tax Dispute Experts have a great track record in challenging such claims, and saving clients significant sums in tax, interest, and penalties.
If you need advice and help in a tax dispute where HMRC want to assess an earlier year then call Lynam Tax now on:
0845 643 9997
or email firstname.lastname@example.org
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We specialise in managing all Tax Enquiry, Tax Disclosures & Tax Disputes with HMRC.
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