HMRC Enquiry

How many years can HMRC go back for error found?

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Client has enquiry into 2016-17 Tax return opened Jun 2017 and still ongoing. It has come to light, prompted by HMRC, that our client has understated savings interest on a account she thought was in joint names with her husband but it turns out to be in her name only. Her husband has always declared half the interest on his tax return, although he has always being a basic rate taxpayer and she always a higher rate taxpayer. This has happened every year since around 2005. Since we have acted i.e. 2017, they only have provided a schedule of interest received and we took their word that they held the account jointly. Therefore the wife has underpaid tax on the interest since 2005 and HMRC have requested a computution of the understated interest since this date. I believe this was a genuine mistake although accept that it will be ' careless' in the eyes of HMRC, but how far back can they go back? (definately not a deliberate error) and should we provide a computation at this time as the enquiry is not yet over and HMRC have not yet made any conclusions about how they intend to treat the error e.g. careless. (Sorry for posting this as ANON but I have previously had an Inspector call me when posting a question on AWEB about a client who was under enquiry asking me if I was 'Joe Bloggs' on Aweb and that if I needed any help i should just speak to him rather than posting questions on a forum !).

Replies (6)

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By Rammstein1
26th Apr 2018 09:37

I would be inclined to give them the figures for the four previous in date years to begin with.

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By SteveHa
26th Apr 2018 10:56

I'd screw what HMRC said about posting on a forum and not use an anonymous veil, anyway.

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Replying to SteveHa:
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By Justin Bryant
26th Apr 2018 12:12

No wonder HMRC are wrong so often if they follow this website for any kind of useful tax information/guidance etc!

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Replying to Justin Bryant:
By SteveHa
26th Apr 2018 16:26

I suppose the difference would be I'd expect any professional advisor worth his/her salt relying on advice here to double check against the legislation, whereas HMRC promote a "monkey see, monkey do" mentality.

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By Paul D Utherone
26th Apr 2018 13:18

Are we talking of major sums?

I should have thought 6 years for careless / negligent but not fraudulent / deliberate (assuming you can stack that up) - TMA 36(1)

If deliberate then 20 years - TMA s36(1A)

As a first off get your evidence that this was a purely careless mistake on a misunderstanding, and with no deliberate element, and let HMRC have 6 years figures.

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By tonycourt
27th Apr 2018 17:48

Ignoring the possible bone of contention of whether the interest actually belongs solely to the person whose name is on the account if beneficial ownership of the funds is actually joint, the position is simple.

HMRC can't open an enquiry in any earlier years, assuming the enquiry windows have passed. They must therefore rely on discovery, which is appropriate in your client's case as all parties are aware there has been an underpayment of tax for 2005 onward resulting from carelessness at least. The question of how far back assessment can go depends, as you have identified, whether the error was merely careless or whether it was deliberate (I note you say it isn't), or whether there was a failure to notify. If deliberate or resulting from a failure to notify then the time limit is 20 years, otherwise it's six because of the careless behaviour.

Therefore, you either co-operate and provide the information HMRC asks for so that it can issue accurate discovery assessments or you don't co-operate and you wait for HMRC to issue them in estimated figures. It's not uncommon for them to make a hash of this and miss deadlines or over-egg an assessment to the extent that it's invalid because it's not made using best judgement.

I suggest you provide HMRC with information for the previous six years along with your argument that the error wasn't deliberate and that there was no failure to notify, thus no assessment prior to the six years is permitted. No doubt HMRC will take a contrary view and if they assess earlier years you'll have to appeal and persuade it or a tribunal of your argument that the error was careless only.

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