How far back can Inland Revenue go?
Originally sent: July 19, 2004How far back can Inland Revenue go to collect unpaid tax? Assuming, that is, there is no suggestion of fraud or negligence on the part of the taxpayer. And also assuming the taxpayer hasn?t made things easy for the Revenue to ?leapfrog? back to earlier years by having a number of incorrect returns spread throughout his or her taxpaying life.
Six years, do I hear? Well done! That answer would probably give you full marks in a theory test. But I have another answer for you ? indefinitely!
Yes, that is correct! Your client might be just about to settle into a moderately comfortable retirement only to discover Inland Revenue raking over her tax affairs in a year soon after she started work 40 years ago!
How can this be? Doesn?t the Statute of Limitations apply?
Well, it is true that Inland Revenue cannot open an enquiry into a tax return going back more than six years unless either they can show fraud or negligence on the part of the taxpayer, or can demonstrate incorrect tax has been declared in a later return which then allows them to go back up to six years from that faulty return ? and so on ad infinitum.
But what if an enquiry had already been opened, and then never closed off? In that case, the Revenue can leave the file open indefinitely and no time limit applies. A normal creditor cannot do this. Wait a few years without receiving any communication regarding your debt and the debt effectively disappears. But different rules apply when your creditor is Inland Revenue.
This might have remained an interesting but obscure legal side note if the National Audit Office had not recently lambasted Inland Revenue for failing to chase up unpaid tax assessments. Inland Revenue has apparently reacted to this criticism by going through all the open cases it can find ? with some apparently even dating from 30 years ago.
The moral of this story is that the Revenue has a very long memory ? try to ensure that the memories it has of you and your clients are only good ones!
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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