HMRC Draws Fire Over Wider Tax Investigation Time Limits

Tom Burroughes Group Editor 29 November 2018

HMRC Draws Fire Over Wider Tax Investigation Time Limits

HMRC is expanding the period when it can examine a person's past to hunt for offshore tax cheats, a step that accountancy firm BDO says is unnecessary.

The UK tax authority is going back further in time than used to be the case to see if taxpayers have hidden money offshore, a move that accountancy firm BDO said is unnecessary and will cause undue alarm.

At present, HM Revenue & Customs has time limits on how far back it can go to scrutinise people’s accounts if it suspects a problem. Where a person is suspected of not notifying a problem or deliberately hiding money, the authority can go back as far as 20 years; with “careless errors”, as it defines them, HMRC can go back six years, and where there are cases of “reasonable care or reasonable excuse,” the time limit is four years.

However, HMRC is extending the four- and six-year time limits to 12 years for income tax, capital gains tax and inheritance tax where there are “offshore matters”. (The changes do not, however, apply to corporation taxes.)

“The extension of time limits relating to offshore matters is widely viewed as unnecessary and alarming, a view that appears to be shared by The House of Lords,” Dawn Register, tax dispute resolution partner at BDO, said. (She was referring to comments recently made in the UK’s upper legislative chamber about the matter.)

“The 12 years goes far beyond the normal four-year time limit for assessments and therefore, could severely impact those who are fully UK tax complaint. In addition, we expect these measures will increase both record keeping and professional advice costs,” Register said.

A succession of recent Conservative, coalition and Labour governments have tightened the screws on alleged tax evaders and the types of tax avoiders. For example, authorities have made tax evasion a strict liability offence, which means prosecutors no longer have to prove intent to defraud the tax collector, a fact that in the past had stymied a number of cases. (Some critics worry that this change erodes important protection for the innocent.)

BDO’s Register said that the government already has plenty of powers it can use without having to expand its time limits.

“Of course we fundamentally support HMRC’s action to tackle tax evasion. However HMRC already has wide ranging civil and criminal sanctions to tackle evasion, both onshore and offshore,” she said.

Register argued – and repeated these points to WealthBriefing in a call – that bodies such as HMRC already have extensive powers to root out tax cheats via, for example, the global information-sharing pacts known collectively as the Common Reporting Standard.

“This data is also more easily analysed and cross referenced through advances in IT. Our view is that hardened tax evaders need to be caught, and enforcement of the existing rules is the answer rather than more new rules,” she added.

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