How Far Back Can the HM Revenue and Customs (HMRC) Pursue Tax Cases?

Over 12 million people in Britain, many of whom have more than one source of income or are self-employed, are required by law to complete a tax return

15:05 14 March 2019

According to the BBC, the HM Revenue and Customs (HMRC) has reported that 700,000 taxpayers failed to submit their self-assessment tax returns in by the deadline.

Taxation Agreement Has Been Signed by Guernsey

According to a press release by the States of Alderney, “On 2nd July 2018, a new double tax agreement was signed by Guernsey with the UK. It has an important impact on those with second homes in Alderney who are UK tax resident.

“If they spend more than 90 days in Alderney (during which time the UK remains the centre of their vital interests) then with effect from 1st January 2019 they will only be subject to Guernsey tax on Guernsey source employment, business and property income.”

It has always been that people spending longer than three months (or 90 days) in the Bailiwick become a taxable resident of Guernsey as well as a resident of their home country.

The government calls this "dual residency."

To sum it up, this law means that any income they acquire in the UK and elsewhere is liable to taxation under the Guernsey tax law.

Some dual residents are eligible for relief from the double tax. However, it is a complicated process to obtain and is only available for those with certain types of incomes.

Some individuals find themselves in trouble with tax authorities because they either don't know this or try to shirk their responsibility.

What the UK Government Has the Power to Do in Order to Pursue Owed Taxes

"Discovery Assessment" refers to the powers employed by the HM Revenue and Customs (HMRC) to investigate an individual or company's past taxes.

If you or your company has received a letter from the HMRC, then investigators suspect one of the following:

• You or your company have underpaid taxes
• You or your company received too much tax relief
• You or your company is suspected of incomplete disclosure, negligence, or fraudulent behaviour

What Gives the HMRC the Right to Initiate a Historical Tax Investigation?

• False or incomplete disclosure led to unpaid taxes.
• The HMRC can look back as far depending on what is discovered.
• The burden of proof rests on the HMRC.
• A deeper investigation may be provoked by anything that makes investigators suspicious in a current tax return. Furthermore, “presumption of continuity” means that they don’t need direct evidence to investigate tax returns further back.

Statute of Limitations

Much like the IRS statute of limitations, the HMRC also has a statute of limitations on how long it can pursue a claim of owed taxes.

However, the time forth which the UK has to pursue an individual for back taxes is far longer than that of the IRS, which is only 10 years.

According to the PWC, “The normal time limit for making assessments is four years following the end of the tax year. This is termed a 'discovery' assessment.

The time limit for making an assessment on a person in a case involving a loss of income tax brought about 'carelessly' by that person is six years following the end of the tax year.”

“The time limit for making an assessment on a person in a case involving a loss of income tax brought about deliberately by that person is 20 years following the end of the tax year.”

It is vital that you, as a UK citizen, pay your taxes on time in order to avoid being audited and subsequently pursued by the HMRC.