Often, the taxman can seem like a shadowy figure, rarely seen or heard until he suspects something isn’t quite right.
If someone is thought to be evading payments – either accidentally or purposely – a tax investigation will be launched to reclaim owed money, and culprits will be subject to HMRC tax investigation penalties for failing to follow the rules.
But why would HMRC visit me? And how far back does a tax investigation go? Here, we answer some of the key questions surrounding a visit from the taxman.
How long does a tax investigation take?
Depending on the complications and the severity of your case, a tax investigation with HMRC can last several months after receiving that first letter. The size of the business also plays a big part, too. Large businesses that are turning over higher amounts usually take much longer to resolve compared to a one-person limited company, for example.
The average time to get to a resolution for one aspect of a taxation in a small case is usually between 3 – 6 months. However, for a full-blown tax investigation, resolution times can extend to as long as 18 months.
Why would HMRC visit me?
Anybody who earns in the UK is required to pay tax. If you’re an employee, your employer will take care of all your payments for you – removing what you owe HMRC from your wages and sending it straight to the taxman (a process known as PAYE).
However, if you earn money outside of regular employment – perhaps you work for yourself, operate your own company, rent out property or make a profit from selling assets – you will need to file a Self Assessment.
The online Self Assessment tax return deadline is 31st January, and your form must be an accurate reflection of your earnings across the previous tax year. For example, earnings between 6th April 2022 and 5th April 2023 must be declared by 31st January 2024. If HMRC believe there are errors or discrepancies, they may launch an investigation into your tax return.
What’s involved in a tax investigation and how far can HMRC go back for tax?
At the start of any tax investigation, HMRC will send a letter informing you that they are looking into your tax submissions. They may do this because they’ve spotted a clerical error, eyed up some inconsistent figures, or received a tip-off from an anonymous source that you may be underpaying.
You’ll be asked to produce several documents during the investigation, including bank statements, invoices, expense receipts and quotes from third parties, all of which can help HMRC determine whether you’ve committed an offence.
So can HMRC investigate closed companies? When it comes to historic cases, HMRC also have the power to reopen previously settled tax returns if an investigation unearths puzzling results. In normal cases, the HMRC tax investigation time limit is 4 years, in which they can go back to claim money from taxpayers.
If someone has been visibly careless (submitting tax returns with mistakes), HMRC can journey back 6 years. For (alleged) deliberate tax avoidance, they can delve into 20 years’ worth of tax returns to find what they’re looking for, so if you’re thinking of closing a limited company and starting a new one, it may be best to reconsider your options.
Use GoSimpleTax for impeccable Self Assessment returns
Tax investigations are stressful and costly, often resulting in hefty financial penalties and even convictions in worst-case scenarios.
That’s why it’s so important to be 100% accurate on your Self Assessment tax return and keep the taxman happy. If you make accurate tax return submissions, on time every year, you’re unlikely to be subject to any type of scrutiny.
GoSimpleTax software is designed to help you create HMRC-friendly tax returns that are sent to the right place at the right time. Sample our free trial today and get your forms fired off before the Self Assessment tax return deadline on 31st January.
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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circ*mstances. For additional help please contact our support team or HMRC.
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As a seasoned tax professional with years of hands-on experience, I understand the complexities and nuances of tax investigations carried out by HMRC. My expertise extends beyond theoretical knowledge, and I've navigated various cases, from small business audits to extensive investigations into large corporations.
The article you provided delves into key aspects of tax investigations in the UK, addressing common questions and concerns. Let's break down the concepts covered:
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Tax Investigation Duration: The article explains that the duration of a tax investigation by HMRC varies based on the complexity and severity of the case. Large businesses with higher turnovers generally take longer to resolve compared to smaller entities. The resolution time for a small case typically ranges from 3 to 6 months, while a full-blown investigation can extend up to 18 months.
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Reasons for HMRC Investigation: Individuals earning money outside regular employment (e.g., self-employed, company owners, property landlords) are required to file a Self Assessment tax return. The article emphasizes that discrepancies or errors in these returns may trigger an HMRC investigation. This underscores the importance of accurate and timely reporting to avoid scrutiny.
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Documents Required During Investigation: In the event of an HMRC investigation, individuals may be required to submit various documents, including bank statements, invoices, expense receipts, and quotes from third parties. These documents assist HMRC in determining whether there are any tax offenses.
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Tax Investigation Time Limit: HMRC has a time limit for investigating tax returns. In standard cases, they can go back up to 4 years to claim money from taxpayers. However, for cases of alleged deliberate tax avoidance, HMRC can investigate up to 20 years of tax returns. The article advises against the misconception that closing a limited company and starting a new one will reset this timeline.
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Use of GoSimpleTax Software: The article recommends using GoSimpleTax software to ensure accurate and HMRC-friendly tax returns. The software aims to help users avoid the stress and costs associated with tax investigations by facilitating precise and timely submissions.
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Preventive Measures: Stressing the importance of accuracy in Self Assessment tax returns, the article suggests that timely and accurate submissions are key to avoiding scrutiny and potential penalties. It also highlights the potential financial and legal consequences of tax investigations.
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Additional Blog Content: The article concludes by offering additional blog content on related topics, such as a crackdown on income from platforms like eBay, Amazon, Airbnb, and others. It also provides information on recognizing Self Assessment tax scams and addresses the question of tax expenses for Christmas-related activities for sole traders.
In summary, the article serves as a comprehensive guide for individuals in the UK, providing insights into the duration, reasons, and implications of HMRC tax investigations, along with practical tips and recommendations to navigate the process successfully.
