How Far Back Can HMRC Investigate Your Self Assessment Tax Returns?

If you’ve made mistakes in the past or even been negligent, you must understand the potential consequences and how to handle an investigation.

How Long Can HMRC Investigate Your Tax Return?

HMRC generally has a time limit for how long they can investigate your self-assessment tax returns. The length of time they can go back depends on the nature of the issue or error, and whether it was a genuine mistake or deliberate tax evasion. These are the key time frames:

• 4 Years – Standard Investigation Period: For most tax returns, HMRC can go back up to four years to investigate errors or omissions. This applies when mistakes are made unintentionally, such as forgetting to include income or miscalculating a deduction.

• 6 Years – Careless Mistakes: If HMRC believes your mistake was due to carelessness, they can investigate for up to six years. This includes errors made from not taking reasonable care, like missing out small income or misreporting expenses.

• 12 Years – Offshore Income or Hidden Assets: If HMRC uncovers undeclared offshore income or concealed assets, they can go back up to twelve years. It’s crucial to fully disclose any foreign income or investments to avoid extended investigations.

• 20 Years – Deliberate Fraud or Evasion: For cases of deliberate fraud or tax evasion, HMRC can investigate for up to twenty years. This applies when HMRC suspects you’ve intentionally concealed income or overstated expenses to avoid paying taxes.

How Long Should You Keep Your Records?

To protect yourself from the risk of penalties and complications in the event of an investigation, it’s important to keep your financial records organised and accessible for a sufficient amount of time. HMRC guidelines for retaining records are as follows:

• Self-employed or Partnerships: Keep records for at least five years after the January 31st filing deadline for the relevant tax year. For example, if you filed your return for the 2022-23 tax year, you should keep all records until January 31, 2029.

• Companies: Businesses need to retain records for six years after the end of their accounting period. This includes income, expenses, VAT records, and employee-related information.

Having complete and organised records helps to ensure you’re ready in case of any investigation and can also help minimise the risk of penalties for errors or omissions.

HMRC Penalties for Tax Evasion

If HMRC finds that you have made mistakes on your tax return or evaded tax, they may impose penalties. The severity of the penalty will depend on the nature of the error or evasion:

If you’re found to have deliberately evaded tax, the penalties can be severe, so it’s essential to file your returns accurately and on time to avoid costly mistakes.

Discovery Assessments

In addition to the standard investigation periods, HMRC has the power to conduct discovery assessments. This allows them to investigate beyond the usual time limits if new information comes to light. For example, if HMRC receives information from a third party, such as a foreign tax authority, about undeclared income you received several years ago, they can go back and assess additional tax. Even if the standard investigation period has passed, HMRC can still make adjustments based on the new information.

How to Handle an HMRC Investigation

If you’re faced with an HMRC investigation, here are steps you should take to handle it effectively:

• Get Professional Help: If you’re uncertain about how to respond, it’s a good idea to consult a tax advisor from Taxd. We can guide you through the process and help you minimise potential penalties.

• Prepare Your Documents: Ensure all your financial documents, such as bank statements, receipts, and invoices, are organised and available for review.

• Cooperate and Be Honest: If you’ve made a mistake, being open and cooperative with HMRC can help in reducing penalties. Transparency is key.

• Know Your Rights: You have the right to challenge any unfair decisions by HMRC, and a professional advisor can help you navigate this process.

What Happens If HMRC Finds Something Wrong?

If HMRC finds discrepancies during their investigation, the following may occur:

• Additional Tax Assessments: If HMRC finds you owe more tax than you originally paid,they will issue an additional assessment. This could include interest and penalties on the extra amount owed.

• Penalties: Depending on the severity of the mistake (carelessness, deliberate concealment, or fraud), they may impose a penalty. The amount of the penalty will depend on their findings.

• Request for More Evidence: If HMRC requires more information or documentation to support your claims, they may request additional evidence. It's important to ensure that all necessary documents are available for review.

Bottom Line

HMRC typically has four years to investigate your self-assessment tax return, but in cases of fraud, they can go back as far as 20 years. The best way to avoid complications is by keeping accurate records, filing your returns on time, and responding promptly if HMRC decides to investigate. If you're unsure about any aspect of your tax return, consider Taxd to ensure you're complying with the rules and minimising the risk of penalties.

FAQs

1. How long can HMRC investigate my tax return?

Generally, HMRC has 4 years to investigate most tax returns, 6 years for cases of carelessness, 12 years for undeclared offshore income, and up to 20 years for deliberate fraud or tax evasion.

2. Why is HMRC investigating me?

Investigations can happen if there are discrepancies in your tax returns or if HMRC suspects tax evasion.

3. What should I do if HMRC issues an enquiry?

Seek professional advice, gather the necessary paperwork, and cooperate with HMRC.

4. Can HMRC look back further than four years if I made a mistake?

Yes, HMRC can investigate for up to 6 years if the mistake was due to carelessness, or up to 20 years for fraud or evasion. They can also go beyond the time limits with a discovery assessment if new information is uncovered.