Is HMRC stretching the law to carry out tax return enquiries after the twelve-month “enquiry window”?

You file your self-assessment tax return well in advance of the January 31 deadline and assume that after twelve months from the day you filed it, should HMRC have any queries, they would have been in touch before their legally binding twelve-month “enquiry window” had closed, right?

The notion that taxpayers are permitted to a “sense of certainty”, that a line is drawn under the prospect that HMRC might come back to query a tax return, has been a legal principle of the self assessment tax system since it was set up in 1996/97. The “enquiry window”, which allows HMRC twelve months to raise questions about a submitted tax return was set out in parliament in the Taxes Act and written in law, allowing taxpayers certainty in their tax affairs so that we can all rest easy that a return has been accepted and that there will be no comeback.

Is the “enquiry window” now wide open?

Recently it seems that HMRC has opened the window of enquiry wider than set out in law and have made attempts to extend the legal time limit beyond the twelve-month window set out in parliament. If taxpayers let go of the right to assurance that HMRC will not query a tax return after twelve months is up, could this give HMRC the right to query a tax return whenever “they get around to it”?

Entitlement to certainty in one’s annual tax affairs is part of the Taxes Act, written in law to avoid a situation where HMRC is able to randomly question a person’s tax position, potentially long after the event. Up until now, HMRC seems to have applied the twelve-month window consistently, but recently there have been examples of the extension of the legal time limit beyond that set out by parliament in the Taxes Act, and without any amendment to the Act, at least one anyone’s aware of.

The new wording in HMRC letters that appears to open the “enquiry window” wider

The recent HMRC letters sent out to some taxpayers formally commence the enquiry procedure within the statutory twelve-month window, but then suggest (maybe because the system’s overstretched) that HMRC will delay asking questions, seeking information, or requesting documents for a period of up to three months.

It seems that in all cases of letters detailing “a three-month extension” that the twelve-month “enquiry window” is just about to close. Some tax specialists are asking perhaps if Her Majesty’s Tax Inspectors are protecting the future position of the Treasury by taking a “just-in-case” approach, rather than deciding if in fact there are any questions for the taxpayer to answer. Some pundits paint a future scenario where HMRC opens an enquiry into every filed tax return suspected of inaccuracy once they have established, by the back door, without authority in parliament and in law, infinite time to ask for information.

What can taxpayers do?

The development is contrary to HMRC’s own internal instructions and contrary to its mandate by parliament and in law. HMRC will insist that the Tribunal system is there to protect taxpayers and anyone can approach the Tribunal to direct HMRC to close the enquiry. This is true, were it not for recent amendments to the Tribunal system that could see taxpayers charged a fee for the privilege—anything from £20 to £200 if the appeal goes to a hearing. The prospect of a fee for pursuing a tax appeal could put off some taxpayers, leaving them at the mercy of HMRC’s (illegal) amendment to the “enquiry window”.