HMRC can start an enquiry into your self-assessment tax returns for any number of reasons but there’s a strict time limit in which it can do so. If questions are asked after the deadline can you just say no?
Information or enquiry
Receiving a letter from HMRC asking questions about your tax return is unnerving, even when you’re sure your figures are right. Before responding it’s important you know what HMRC can ask for and what it cannot. While it has wide powers to start enquiries into tax returns or ask for information and documents, there are rules which protect you from a tax inspector going on a fishing expedition.
Deadlines and conditions
A strict time limit is placed on HMRC for starting an enquiry. Broadly, it has one year from the deadline for submitting the tax return. Under no circumstances is HMRC allowed to extend an enquiry to another year’s tax return if the deadline for it has passed. However, if HMRC has missed the deadline it can use its “information powers” (sch.36 Finance Act 2008 ) to ask questions and request documents if it has reason to suspect that your self-assessment is wrong.
Tip. HMRC must be able to tell you why it suspects your tax return is wrong. If it can’t or the reason it gives is vague, you can appeal against the notice. You do not need to provide any information or documents to HMRC unless, or until, the appeal is settled in HMRC’s favour.
Slow start
HMRC’s approach is usually to informally ask for the information it wants and allow 30 days at least for you to provide it. If you don’t it will formalise its request, i.e. send a letter (notice) specifically saying that it’s using its sch.36 powers to demand information.
Information limitations
Importantly, sch.36 does not allow HMRC to demand further tax, only to establish if it’s due. To collect tax HMRC must issue an assessment using its discovery powers (s.36 Taxes Management Act 1970 ), but it can only do this if it has discovered an error from the information and documents you sent it or from another source, and it indicates insufficient tax being shown as payable by your tax return.
Discovery assessment
Even if HMRC discovers an error there are time limits which restrict when it can issue an assessment. They are:
- for errors which were not caused by careless or deliberate action on your part – four years from the end of the tax year in question
- for errors resulting from your careless behaviour – six years
- for deliberate errors – 20 years.
Another chance to appeal
If HMRC decides it has discovered one or more errors in your return (this includes your accounts), and issues an assessment, you have the usual 30 days in which to appeal. For example, you can appeal if you think the amount HMRC has assessed is wrong or it’s missed the deadline.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit <a href=”http://www.indicator-flm.co.uk”>www.indicator-flm.co.uk</a> or call 01233 653500.