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How Far Back Can HMRC Go Back For Tax

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  • 06-04-2022
How Far Back Can HMRC Go Back For Tax

When considering your tax returns, a question often asked is: how far back can HMRC go back for tax? This article looks at what HMRC needs to look at and how long you need to keep records for.

What is an HMRC tax investigation?

HMRC holds the right, at any point, to check your affairs. This is done in order to make sure that you are paying the correct amount of tax. 

If your business is selected for an official HMRC tax investigation, then you will receive an investigation letter through the post or a phone call where you will be told what it is exactly that HMRC wants to look at. This might include the following:

Your tax calculations as well as your accounts

The tax that you pay annually

Your self assessment tax return for any given year

Your PAYE records and returns if you are an employer

Your company tax returns

your VAT returns and records, if you are VAT registered

If you settle your accounts through an accountant, then HMRC may contact them instead of yourself. In this situation, your accountant should get in touch with you to let you know.


The three types of tax investigation

There are three varying levels of audit that HMRC can carry out.


Firstly, there is a full enquiry. Here, HMRC will review the entirety of all your business records. In most cases, this is done because they believe that there may be a significant risk of an error within your tax. 

When HMRC are investigating limited companies, they may take a close look at the tax affairs of the company directors as well as the taxes of the business itself.


Secondly, there is an aspect enquiry. As you may be able to pick up from the name, an aspect enquiry will just look at specific aspects of your accounts. 

An example of this would be inconsistencies in a certain section of a recent tax form.


Finally, HMRC sometimes carries out random checks. These can happen at any time and have no bearing on the state of your accounts or whether you have made any tax errors.

How Far Back Can HMRC Investigate?

The amount that HMRC will look back at your accounts and tax contributions will depend on how serious they believe your case to be. 

If the HMRC suspects that you may have been deliberately evading tax, they can investigate as far back as 20 years. Though this isn't all that common. What is more common is investigations into simply careless tax returns. 

In these cases, HMRC will look back 6 years to investigate. Errors made completely innocently will usually cause HMRC to look back to around 4 years.

Investigations will often start with an enquiry into the tax returns of the year previous. Once the investigation begins, HMRC will be attempting to determine the following:

 Have there been any mistakes? If not, then the case is closed.

 Was the mistake due to an innocent error? If this is the case, then HMRC will look back 4 years.

 Was the mistake due to neglect or carelessness? If this is the case, then HMRC will look back around 6 years.

 Was the mistake a purposeful attempt to avoid paying tax? If this is the case, then HMRC will look back around 20 years.

Keep in mind that at any point of the investigation, HMRC can change its stance on the reason for why any mistakes or omissions were made. 

So if at the beginning of an investigation, HMRC believes that a mistake was simply made accidentally but then finds that the mistake was actually another in a line of ongoing negligence, then the investigation can be extended. At this point, HMRC will request more information about your tax history.

HMRC can also start an investigation into an individuals finance's due to information that has been passed along from an outside source, other than a tax return. 

This could be from Land Registry information or overseas banking details; these can trigger an enquiry. These investigations can also look back a similar length of time to the tax return investigations.

The more that HMRC wishes to look back at your records, the more stressful and difficult the tax investigation can become. HMRC can request a lot of information, and the process of obtaining everything they request can be overwhelming.

We would recommend getting in touch with a specialist who will be able to give you advice right from the early stages of the tax investigation. 

They can ensure that you make all the correct and logical decisions, as well as challenge HMRC on specific points when it is appropriate.

What will HMRC be looking for during an enquiry?

The investigation into a tax return can vary depending on the issue that HMRC believes that they have detected. 

It can sometimes just be concentrated on a singular entry within the tax return due to it looking wrong.

Other times it will be a look at the deductibility of different expenses which are shown in the profit and loss figures.

How do they HMRC obtain this information?

HMRC obtain information using their information-gathering powers in Schedule 36, Finance Act 2008. 

All information gathered is done to support their tax investigation.

It is important to note that there are no time limits on how far back HMRC can request information about your tax returns and accounts.

Why Would HMRC Visit Me?

Anyone who earns in the UK is required to pay tax. If you are an employee of a company, then your employer will take care of all your tax payments for you. 

They will remove what you owe HMRC from your wages and then send it directly to the taxman. This process is known as PAYE.

If you earn money outside of what would be considered regular employment, for example, if you work for yourself, own your own company, rent out properties, or make money from selling assets, then you will need to apply for a self-assessment.

The online self-assessment tax return deadline is on January 31st, and your form absolutely must be an accurate representation of your earnings from the last tax year. 

For example, any earnings that are made between April 6th 2021 and April 5th 2022, must be declared by January 31st 2023. If HMRC then deems errors within your tax return, they will launch a tax investigation.

Are you looking for a tax returns accountant in Wakefield and west Yorkshire? Follow the link below to contact our tax advisors.