How Far Back Can The HMRC Investigate Tax Returns?

If you are keen to learn about how far back the HMRC investigates tax returns, you will detailed guidance in the following article. While our main focus will remain on the details regarding how far back HMRC tax investigations go, we will also discuss the repercussions of such investigations; depending on individual circumstances.

How Far Back Can The HMRC Investigate Tax Returns?

In typical cases, the HMRC can investigate matters related to tax returns as far back as 4 years; however, in some cases, primarily when a taxpayer has been known to file erroneous tax returns, the tax investigation can go as far back as 6 years. 

Then there are extreme cases when the HMRC suspects deliberate tax fraud. The tax investigation can go as far back as 20 years in such cases.

Below are the key circumstances that determine how far back the HMRC can investigate tax returns:

• in cases of Clerical Errors, the tax investigation can go back up to 4 years in the past
• in cases of incomplete disclosure, the tax investigation can go back upto 6 years from the date of filing 
• in cases of tax fraud or neglect, the tax investigation can go back 20 years from the date of filing

A standard HMRC tax investigation starts with the authorities sending a formal letter to the intended taxpayer, informing them of the situation at hand and asking them to prepare or provide certain documents by a certain due date. A meeting is also scheduled in this correspondence so that the investigation can proceed. 

Based on the outcome of this meeting and the documents provided by the taxpayer, the authorities can move on with their investigation. It is important to remember that if someone is suspected of filing erroneous tax returns on purpose or committing tax fraud, previous cases that may have been held against them and closed successfully can also be re-opened during the investigation.

How Long Does An HMRC Investigation Take?

How long an HMRC investigation takes depends on the following factors:

• the severity of the case
• complications related to the case (if any)
• the evidence revealed
• whether or not the intended taxpayer is suspected of deliberate tax evasion
• whether it is an individual case or a corporation tax case
• size of the business

Based on these above factors, it can take several months for an HMRC investigation, starting from the time that someone receives their first official correspondence from them. Therefore, simpler cases may take 3-6 months to conclude while complex and large-scale cases can take up to 18 months at times.

What Is Included In An HMRC Tax Investigation?

An HMRC tax investigation takes account of all the incomes and expenses of an individual or a business against whom a case is being processed. During this time, individuals will have to provide personal and financial details with evidential support.

In some cases, the HMRC will inform the individual or business of the exact documents that they are looking for and that they should be made available by a certain date or during a scheduled meeting.

However, generally speaking, details regarding the following are required in an HMRC tax investigation:

• the amount of tax that one has paid
• their accounts and tax calculations
• details of their self-assessment tax return for a given year
• details of their company tax return
• details of their PAYE records and return (in case of employer)
• details regarding their VAT returns and records (in case of being VAT registered)

What Happens If Someone Has Not Paid Their Taxes?

What happens if someone has not paid their taxes depends on whether the tax evasion was a deliberate act or one made in error. If someone has not paid their taxes intentionally, the HMRC will charge them with tax evasion; which is a criminal offence in the UK. 

As a result of this, the individual will face court proceedings and can be penalised with an unlimited, prison sentence of up to 7 years (depending on the severity of the nature of the offence) or both.

On the other hand, if someone has missed out on their tax payments in error or has filed incorrect tax returns, they should inform the HMRC immediately as the consequences in such cases are not punishable by law. 

If an individual is found to have misrepresented their taxes in error, they will be asked to work out a repayment plan with the HMRC so that their tax arrears can be cleared. There are harsh consequences in such cases as hefty fines or prison sentences.

What Is The Penalty For Tax Evasion?

The penalty for tax evasion depends on the circumstances. Below are the details of this classification:

• If someone is found guilty of income tax evasion, their summary conviction is 6 months in jail or a fine of up to £5,000. The maximum penalty for income tax evasion in the UK is seven years in prison or an unlimited fine.
• If someone is found to be guilty of VAT Evasion of VAT, the maximum sentence is 6 months in jail or a fine of up to £20,000. In the case of a Crown Court, the penalty can be a maximum of seven years in prison or an unlimited fine.
• If the case is about cheating the public revenue, the penalty is life in prison or an unlimited fine.
• If someone is caught providing false documentation to HMRC, they may have to pay a fine of up to £20,000 or face up to 6 months in prison.

Conclusion:

The above discussion helps to conclude that depending on the severity of a case, a matter of tax investigation can go as far back as 4 to 6 years in general situations and up to 20 years in serious cases of deliberate tax evasion.

References:

How Far Back Can HMRC Investigate? | Tax Qube London Tax Advisers

How Far Back can HMRC Investigate Tax Affairs? – Company Debt Ltd

If you have not told HMRC about income – GOV.UK