Often, the taxman appears to be a mysterious presence, rarely seen or heard until he senses something is wrong. If someone is suspected of dodging payments, whether mistakenly or on purpose, a tax...
Often, the taxman appears to be a mysterious presence, rarely seen or heard until he senses something is wrong.
If someone is suspected of dodging payments, whether mistakenly or on purpose, a tax investigation will be opened to reclaim unpaid money, and offenders will face HMRC tax inquiry penalties for failing to follow the laws.
But why would HMRC come to see me? And how far back may a tax probe be traced? Here, we answer some of the most often asked questions about a taxman visit.
WHAT IS THE DURATION OF A TAX INVESTIGATION?
A tax investigation with HMRC can extend several months after getting that first letter, depending on the intricacies and severity of your case. The company's size is also a consideration. Larger organisations with more turnover typically take significantly longer to settle than a one-person limited company, for example.
In a minor case, the typical time to reach a resolution for one component of taxation is between 3 and 6 months. However, the resolution time for a full-fledged tax probe can take up to 18 months.
WHY WOULD HMRC COME TO MY HOME?
Anyone who earns money in the United Kingdom is expected to pay tax. If you work, your employer will handle all of your payments for you, deducting what you owe HMRC from your wages and delivering it directly to the taxman (a process known as PAYE).
However, if you earn money outside of conventional employment, such as working for yourself, running your own business, renting out property, or profiting from the sale of assets, you must file a Self Assessment.
The deadline for filing your online Self Assessment tax return is January 31st, and your form must accurately reflect your earnings for the previous tax year. For example, earnings between April 6, 2022 and April 5, 2023 must be declared by January 31, 2024. If HMRC suspects there are problems or anomalies in your tax return, they may initiate an investigation.
WHAT IS A TAX INVESTIGATION AND HOW FAR CAN HMRC GO BACK FOR TAX?
HMRC will send you a letter alerting you that they are looking into your tax submissions at the start of any tax investigation. They may do so because they have discovered a clerical error, observed some conflicting data, or obtained information from an anonymous source indicating you are underpaying.
During the inquiry, you will be required to supply many documents, including bank statements, invoices, expense receipts, and quotes from third parties, all of which can assist HMRC in determining if you have committed an infraction.
So, can HMRC look into closed companies? In the event of historical cases, HMRC has the authority to examine previously settled tax returns if an inquiry reveals perplexing results. In most circumstances, HMRC has a four-year window in which they can go back and demand money from taxpayers.
HMRC can go back 6 years if someone has been clearly sloppy (submitting tax returns with errors). They can dive into 20 years' worth of tax returns to locate what they're searching for for (claimed) willful tax evasion, so if you're thinking of terminating a limited company and creating a new one, you might want to reconsider your alternatives.
