15 May 2017
Following the submission of a Self Assessment tax return, HMRC have 12 months from the date of filling the return to enquire into any aspect of that return, so long as the return is filed on or before the normal filing date. But what happens if HMRC do not open an enquiry within that time limit? Is everything agreed and final?
No, unfortunately not, as S34(1) TMA 1970 allows for HMRC to make a discovery assessment, within four years, from the end of the tax year to which the assessment relates.
Further, S36(1) TMA 1970 allows HMRC to make a discovery assessment at any time not more than six years after the end of tax year in question if it is a case that involves a loss of Income Tax or Capital Gains Tax ‘brought about by careless’ error, and S36(1A) extends this to 20 years where the loss of tax is brought about by deliberate error.
This may sound like the legislation being stacked against the taxpayer, in that it looks like it is giving HMRC four deadlines to attempt to enquire into a taxpayer’s return.
However, what is possibly less well understood is the longer the time it takes for HMRC to enquire, so the burden of proof shifts. The enquiry within one year is down to the taxpayer to prove his figures. As we move to the four year tax period, again the onus is on the taxpayer to show that he was right. In the six year case and the 20 year case the onus shifts to HMRC, as in both cases the HMRC believe that some tax has been lost and that has either been caused by a careless or deliberate error. In both cases HMRC have to prove both the loss of tax and also the culpability of the tax payer.
Therefore, the monitoring of timings as to when tax returns are submitted and when the opening enquiry letter is raised do become critical as well as the section number under which the enquiry is opened, as this can influence the information and advice provided to clients and HMRC alike.