Regardless of your position, it can be daunting when you find out that HMRC wants to conduct a tax investigation. HMRC makes great efforts to combat tax avoidance, but how far back do they investigate?
Anyone can be subject to an investigation by HMRC, so it’s beneficial to understand more about why they investigate and how far back they can go on your records. To find out more about HMRC investigations, potential triggers, and how far back they can go, continue reading.
Who is HMRC?
Although most of us will be familiar with HMRC (HM Revenue and Customs), what do they do exactly? HMRC is a non-ministerial department of the UK government that is primarily known for collecting taxes from both individuals and businesses.
Funds gathered by HMRC typically go towards important public services, including road work, schools, and hospitals, to name a few.
Additionally, HMRC administers various benefits – from child benefits to sick pay. Each of us needs to understand the importance of HMRC and what they’re responsible for.
Reasons Why HMRC Investigates
What causes an investigation by HMRC? Usually, HMRC will investigate if they’re suspicious of you or your business. It’s understandable to show concern when you find out HMRC wants to investigate, especially if you don’t think you’ve done anything wrong.
If you’ve made sure to pay your taxes on time and kept efficient accounts, then you shouldn’t have too much to worry about. There are some key reasons why HMRC might decide to investigate, including:
- Errors in your tax return
- Paying tax late
- Inconsistencies in your tax returns
- Having offshore accounts
- Investing in schemes that HMRC views as tax-avoidant
HMRC could also receive a tip-off, which could result in you being investigated. That being said, HMRC does carry out random investigations each year in hopes of targeting deliberate tax evasion, which is sometimes hard to find.
Any UK taxpayer can be subject to HMRC tax investigation. Whether it be income tax, corporation tax, capital gains tax, or stamp duty land tax – HMRC can investigate all types of taxes.
Many businesses work with accountants, who deal with accounts and taxes on their behalf. If HMRC does reach out for an investigation, they’ll likely contact your accountant, who deals with your tax affairs.
What Does HMRC Check During a Tax Investigation?
When you’re under investigation, HMRC will either send you a letter or call you directly. They’ll then inform you why they’re conducting an investigation. During an investigation, HMRC typically checks:
- Taxes you pay
- Tax calculations
- Self-assessment tax returns
- Company tax returns
- PAYE records and returns
- Accounts
- VAT (if you’re VAT registered)
Once you’re aware of your investigation, you’ll be required to provide them with important information, including details about your tax returns, documents used to complete your tax return or general financial records. HMRC might ask to visit your address, office, or accountant’s office.
During their visit, you can have either a legal adviser or your accountant present. In some cases, it might be a small discrepancy that has been flagged up to HMRC, and you’ll likely be able to resolve this without a large investigation.
However, this won’t always be successful – and the decision ultimately lies with HMRC. The more serious the case, the more intense the investigation could be. HMRC can carry out three main types of audits:
- Full enquiry
- Aspect enquiry
- Random check
Be sure to cooperate with HMRC to ensure that the investigation goes as smoothly as possible. It’s important to respond to HMRC as soon as you can. If you decide to ignore HMRC or refuse their requests, there could be consequences.
How Far Back Can HMRC Investigate?
Now that you know what HMRC might check for, you’ll likely be wondering how far back they can investigate. HMRC can investigate back anywhere between four and 20 years ago. However, this depends on the circumstances of the case. For example, HMRC can go back to:
- Four years ago for minor mistakes
- Six years ago for carelessness (failing to care for your tax affairs)
- Up to 20 years ago for suspicion of deliberate tax evasion
Dealing With HMRC Investigations
Dealing with HMRC tax investigations can be daunting. It’s important to cooperate with HMRC and provide any information they require. Seeking legal help is most beneficial in this type of situation, especially if this is your first time being under investigation.
At LJS Accounting Services, we offer expert advice, guidance, and overall support when you need it most. Our team of legal professionals work alongside a diverse client range, helping navigate HMRC investigations.
We’ll sit down with you, assess your options, and handle the investigation while prioritising you and your business. With years of experience dealing with HMRC investigations, you can trust us to assist you during this time.
We understand how challenging it can be to be confronted with an investigation by HMRC. We offer tax enquiry insurance cover, which pays our professional fees in the sudden event of an investigation. This means that you’ll have access to our specialist service with peace of mind.
Hiring an Accountant
One of the easiest ways to avoid making mistakes in your tax return is by working with an accountant. If you feel as though you need a dedicated accountant to help handle your taxes, we can help. In many cases, HMRC wants to investigate when there have been mistakes in your tax returns.
With the assistance of a dedicated accountant, you can relax, knowing someone is there to take care of things for you while you focus on other vital parts of your business.
We also offer a personal tax service, helping clients complete their self-assessment tax returns on time without facing any fines or penalties. Whether you’re a sole trader, limited company, or charity, LJS Accounting Services can assist you.
To find out more about how we can help you, we encourage you to get in touch with us today. We look forward to speaking soon.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
