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 (of roughly a year) they can normally collect any additional tax that they can prove is due - regardless of the reason for the under declaration;
- 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 taxman 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.
- 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 2018. At April 2019 the year 2012/13 would normally go out of time (on the basis of careless behaviour). So in early 2019 the inspector might issue a protective assessment for 2012/13, even though the Tax Investigation is not finished. The Tax Compliance Check might not be concluded until say December 2023; more than 6 years after the end of 2011/12. But as the assessment for that 2012/13 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.
Since September 2018 they have 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 email@example.com
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We specialise in managing all Tax Enquiry, Tax Disclosures & Tax Disputes with HMRC.
We will help you throughout the Tax Investigation or Disclosure and save you money, so you can concentrate on running your business and enjoying your private life.
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