How Far Back Can a HMRC Investigation Look?
When it comes to tax investigations, HMRC has the power to investigate individuals and businesses at will, with these investigations being designed to ensure that taxpayers are complying with tax laws & regulations and making the correct tax payments in line with their income & costs.
What Is The Purpose of Tax Investigations?
A tax investigation is HMRC’s practice of making sure that issues in declared income or tax payments are resolved - whether they’re accidental errors on a tax return or a case of tax evasion.
The severity of the investigation, and what’s involved, is dependent on the type of investigation you receive. And, the type of investigation is based on the cause for concern that HMRC have encountered. This can be a multitude of reasons, but common triggers for investigations are:
Random checks
Suspected tax evasion or fraud
Unexplained wealth or income
Incorrect tax returns or underpayment of taxes
Failure to register for taxes
What powers do HMRC have?
When it comes to tax investigations, HMRC holds a wealth of powers, and the scope of their investigations encompass all self-employed individuals and companies across the UK.
If there is reason to suspect foul play, HMRC can request any information they need to conduct an investigation, including bank statements, invoices, and other financial records. Once you’ve received a request for information, you have to comply.HMRC can also visit business premises and request interviews with business owners or employees if they see fit.
In terms of the scope of their investigations, HMRC can look back at a taxpayer's financial records for up to 20 years; however, this is rare and usually only occurs in cases of suspected fraud or serious tax evasion as theses are tied to criminal offences - and therefore treated with the utmost severity!
It’s important to note that HMRC must have a reasonable suspicion of wrongdoing before they can launch an investigation. They cannot conduct random in-depth investigations without cause. However, once they’ve established cause they are within their rights to launch as detailed an investigation as they require.
How Far Back Can a HMRC Investigation Look?
When it comes to HMRC investigations, there are time limits that dictate how far back the tax authority can look into your personal information; although these time limits do vary depending on the circumstances of your case.
Standard Time Limit
The standard time limit for HMRC investigations is four years. This means that HMRC can look back at your tax affairs for the past four years from the end of the tax year in question. For example, if you filed your tax return for the 2022/2023 tax year on 31 January 2024, HMRC can investigate your tax affairs for that year until 5 April 2027.
It's worth noting that the four-year time limit applies to careless mistakes. If HMRC suspects that you have deliberately evaded tax, the time limit is extended.
Extended Time Limits for Serious Cases
If HMRC suspects that you have deliberately evaded tax or committed fraud, the time limit for investigation is extended. In these cases, HMRC can look back at your tax affairs for up to 20 years.
Often, the extended time limit only applies in cases of deliberate tax evasion or fraud.
Types of HMRC Enquiries
When HMRC selects your tax return for investigation, they can carry out different types of enquiries depending on the circumstances. The three most common types of HMRC enquiries are:
A Full Enquiry
A full enquiry is the most comprehensive and detailed type of HMRC enquiry. HMRC will scrutinize your tax return and all the supporting documents to ensure that everything is accurate and complete. They may also ask for additional information and documentation, such as bank statements and receipts, to support your tax return.
A full enquiry can be triggered by various reasons, such as a high level of risk, a significant change in your tax return, or a random selection. HMRC can go back as far as they want in a full enquiry, but they usually limit themselves to the last four years.
An Aspect Enquiry
An aspect enquiry is a more targeted type of HMRC enquiry that focuses on a specific aspect of your tax return. HMRC may ask for more information or documentation on a particular item, such as a business expense or a capital gain.
An aspect enquiry is usually less intrusive than a full enquiry, but it can still be time-consuming and stressful.
An aspect enquiry can be triggered by various reasons, such as a discrepancy in your tax return, a change in your business activities, or a random selection. HMRC can go back as far as they want in an aspect enquiry, although they will usually limit themselves to the last four years.
A Random Check
A random check is a type of HMRC enquiry that is purely based on chance. HMRC selects a small percentage of tax returns at random for investigation to ensure that the tax system is working properly. A random check is usually less intrusive than a full or aspect enquiry.
For a random check HMRC will usually limit themselves to reviewing the last four years of accounts.
Responding to an HMRC Investigation
If you receive a notification from HMRC about a tax investigation, it is important to respond promptly and appropriately to avoid any further legal complications. Here are some steps you can take to respond effectively to an HMRC investigation.
Legal Representation
It is highly recommended that you seek legal representation from a lawyer experienced in tax investigations. A lawyer can help you understand your legal rights and obligations, as well as provide legal professional privilege to protect your interests.
Gathering Documentation
Gather all necessary financial records, including bank statements, receipts, and invoices. Ensure that you have accurate and up-to-date records for the period under investigation. Organize your records in a clear and logical manner to make it easier for your lawyer to review them and prepare your case.
Cooperating with HMRC
Cooperate with HMRC and provide them with all the necessary information they require. Failure to cooperate can result in additional penalties and legal action. Be honest and transparent with HMRC, and do not withhold any information that may be relevant to the investigation.
If you or your business are facing an HMRC investigation, or if you want to minimise your risk of being investigated contact the Blue Skies team today for a no-obligation chat. Find out how we’ve helped thousands of individuals like yourself over the last 20+ years.
Speak to our team on 01767 699996 or thecrew@blue-skies.tv