HMRC investigation time limits vary according to the circumstances. As a general rule, HMRC has one year to open a tax investigation, starting from the date the return is filed. The investigation can go back four years, although this is extended to six years where careless mistakes have been made, and 20 years if there is any indication of dishonesty.

How far back can HMRC investigate?

If HMRC suspects that there has been incomplete disclosure on a tax return, resulting in the loss of tax, it will launch an official investigation. HMRC officers have 12 months to open an enquiry, starting from the date the return was filed. An investigation can be opened after this deadline, but only if HMRC officers cannot reasonably have been expected to know about the relevant loss of tax at the time (for example, because the taxpayer concealed certain details).

As part of the investigation, HMRC might want to consider historic tax and financial information. This is known as a discovery assessment. But how far back can HMRC investigate? It depends entirely on the circumstances.

The starting point is four years. However, this time frame is extended to six years where careless mistakes have been made, resulting in an incomplete disclosure and loss of tax. The exception is where careless mistakes have been made regarding VAT, in which case the time frame remains four years. This is further extended to 20 years if there is a suspicion of dishonesty, fraud or negligence.

To summarise, an HMRC investigation can go back:

  • Four years where basic/innocent clerical errors have been made
  • Six years where careless mistakes have been made
  • Four years where careless mistakes have been made regarding VAT
  • 12 years where there are anomalies regarding offshore income, capital gains tax and inheritance tax
  • 20 years where there are allegations of fraud
  • 20 years for a failure to notify HMRC about a source of taxable income without a reasonable excuse

HMRC can amend their reasoning as the tax investigation unfolds. This means that you might initially be subject to the four-year rule, only for this to be increased to six or 20 years.

What information can HMRC request?

There are three levels of HMRC investigation:

  1. A full enquiry – which is a thorough investigation into all tax and financial affairs
  2. An aspect enquiry – which is an investigation into one aspect of your financial affairs
  3. A random check – which is conducted as an HMRC officer sees fit

The type of investigation dictates the kind of information HMRC will want to see. HMRC has wide-ranging powers and can ask to review all types of documents, such as:

  • Your accounts
  • Self-assessments
  • Calculations
  • VAT returns
  • PAYE records
  • Company tax returns

How far back can HMRC claim unpaid tax?

HMRC must judge your actions according to the laws at the time of your actions (or the company’s actions), rather than modern day standards.

If it finds that tax is owing, HMRC can recover the loss for the relevant period. This means HMRC can claim up to 20 years of unpaid tax, if the investigation went back that far. Interest can be added to this figure.

In addition, HMRC can issue a penalty where careless or deliberate behaviour has occurred. This is a percentage of the amount owing. There is a sliding scale, with deliberate dishonestly being penalised more heavily than carelessness. For carelessness, the penalty might be up to 30% of the outstanding debt.

Did HMRC act within the rules?

HMRC has the power to investigate all individuals and businesses that pay tax (or should pay tax) in the UK. You might be randomly selected for an investigation, or the investigation might be triggered by:

  • An anonymous tip-off
  • Fluctuating figures
  • Missed filing/payment deadlines
  • Concerns that the industry is high-risk for fraud

After an initial enquiry, HMRC may want to look at information and documents from years gone by. However, a discovery assessment can only be issued if:

  1. The loss of tax was brought about carelessly or deliberately; or
  2. An HMRC officer cannot reasonably have been expected to know about the relevant loss of tax at the time. This can be relied upon if HMRC fails to investigate the loss within the 12-month window.

If HMRC makes a discovery assessment without meeting the necessary conditions, that discovery assessment is invalid. If this happens to you, you take an appeal to the tribunal. This must usually be done within 30 days, so it is important to get legal advice as soon as possible.

Are you facing an HMRC investigation?

If you’re facing an HMRC investigation, please contact us at Altion Law. We can advise you about the validity of a discovery assessment, helping you take the matter to appeal if appropriate.

We specialise in HMRC investigations, compliance and regulatory matters, and director disqualification. We can discuss your case with you and determine the best way forward.

If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you.