Why would HMRC claim unpaid tax? And how far can HMRC claim go back? There are many different time limits. The limit set depends on whether it is a claim or an assessment.
The HMRC is a government agency in the United Kingdom that assists the government in collecting taxes and duties on its behalf. HMRC assists people in reclaiming their tax by offering information on how to submit a claim for their unpaid tax to the government.
HMRC will investigate further back the more serious they think a case could be. If they suspect purposeful tax evasion, they can investigate as far back as 20 years. More commonly, investigations into careless tax returns can go back six years, and investigations into innocent errors can go back up to 4 years.
Let’s get started and find out the length of time HMRC can go and Claim Unpaid Tax.
HMRC tax investigation
HMRC can investigate your taxes anytime to see if you’re paying what you owe.
You have to cooperate with a tax investigation, but this does not mean you are guilty. As long as you have reasonable accounting procedures and an accountant who can help you, a tax investigation should not be too complex or time-consuming.
They’ll usually contact you first, either with a letter or a phone call and let you know what specific details they want to look at.
This might include things like:
- This might include things like:
- The tax that you pay
- Your accounts and tax calculations
- Your Self Assessment tax return for a given year
- Your Company Tax Return
- Your PAYE records and returns if you’re an employer
- Your VAT returns and records if you’re VAT-registered
HMRC may contact you if you use an accountant, but your accountant should tell you about it. On average, tax audits can be expected every five years or so. Fewer than 2% of income tax credit and corporation tax credit returns are investigated each year.
Why would HMRC put an investigation on me?
If you’re an employee, your employer will take care of all your payments. They will remove what you owe HMRC from your wages and send it straight to the taxman. This process is also known as paying taxes through payroll deductions.
However, you may need to file a Self Assessment if your income comes from sources other than working for anyone else. Such as self-employment, you are renting out property and making a profit as an investor. If you have any questions about this form, please contact MRRC, and they will help you.
The deadline for submitting your online Self Assessment tax relief is January 31st, and your form must accurately reflect your earnings for the preceding tax year.
For example, income from April 6th 2021, to April 5th 2022, must be declared by January 31st 2023.
HMRC can initiate an investigation if they believe your tax relief contains errors or irregularities.
How long does a tax investigation take?
It can take some time to figure out your tax position, typically several months after receiving your first letter. When it comes to larger organisations, a lot more work needs to be done to meet the deadlines. In comparison, some companies are made up of one person and can be fully resolved much quicker.
HMRC’s investigations can last for up to 12 months, though this will depend on the complexity of your case. Sometimes it can take 3-6 months to resolve a specific tax issue. Even in minor cases, it’s essential to wait until a solution is found and ensure the case has been resolved.
But for a full-blown tax investigation, you can expect to wait up to 18 months.
How Far Back Can HMRC Claim Unpaid Tax?
HM Revenue & Customs will send you a letter notifying you that they will investigate your tax entries. They may do so as a result of a paperwork error. It examines some inconsistent figures or a tip from an anonymous source that you are underpaying.
Throughout the investigation, you will be required to produce various documents, including bank statements, invoices, expense receipts, and quotes from third parties. All of this information can assist HMRC in determining whether you have done something illegal.
HM Revenue & Customs also has the authority to reopen previously settled tax returns if an investigation reveals puzzling results. In most cases, HMRC has a four-year time limit on tax investigations during which they can return to claim money from taxpayers.
HMRC can go back six years if someone has been visibly careless (submitting tax returns with errors). They can search through 20 years’ worth of tax returns to find what they’re looking for purposeful tax avoidance.
Therefore, if you’re considering closing your limited company and forming a new one, you may want to rethink your choices. The further back HMRC wishes to look; the more arduous and exhausting a tax investigation can be for many people.
HMRC’s request for information and detail can be overwhelming, so it is critical to seek specialist advice early on. It will assist you in making the correct decisions, including challenging HMRC if necessary.
If HMRC claims unpaid tax, they may initiate enforcement actions such as sending a notice, applying penalties, or taking legal action to recover the debt.
Our services of Tax Planning for Partnership Firms can help you optimize your tax strategy and stay compliant.
What information will HMRC be looking for during an investigation?
HMRC will conduct a detailed inquiry and request all of your financial papers. Typically, they believe there is a high probability of an error in your tax return. When investigating limited liability companies, they may investigate the directors’ tax affairs and the operation of the business.
HMRC will investigate any areas of your tax return that they consider essential, such as revenue mismatches. Their reviews verify the accuracy of information regarding one or more specific issues discovered during the investigation.
For example, HMRC may have interesting information from a building society that contradicts the information on your return. They will require additional information and request more extensive responses/explanations in this scenario.
HMRC has a reputation for conducting “compliance checks” on the accuracy of some tax returns. Many organisations will be subjected to random inspections, while others will be subjected to risk-based assessments. Random checks can occur at any moment, independent of the settings for your accounts or trigger notifications.
Penalties for Tax Evasion?
Failing to file tax returns and make payments on time can lead to a financial penalty. There are also penalties if you carelessly report information on your tax return. The most severe penalties are applied to those trying to avoid paying tax and hide that.
Penalties are charged on a sliding scale based on why the error occurred. The severity of the tax penalty will depend on what caused that particular mistake to happen and can be anywhere from a warning to permanent account termination.
FAQ
What are the chances of being investigated by HMRC?
7% of investigations are conducted at random. As a result, we can presume that everyone is at risk. In reality, the majority of inspections occur when HMRC discovers an error.
What might HMRC investigate during an investigation?
HMRC will evaluate the completion of your business records during a comprehensive enquiry, typically because they believe there is a strong possibility of an error in your tax. When investigating limited liability corporations, they may look extensively at the company’s directors’ tax affairs and the business’s operations.
Conclusion
HMRC has the power to claim unpaid tax up to six years after the end of the tax year in which the liability arose. If you have not paid your taxes by then, HMRC can take action against you and reclaim any money owed from your bank account or other assets.
HMRC can also claim unpaid tax from a company for any period it was carrying on a trade, even if it has since ceased trading.
