Digging up the dirt
HMRC are usually allowed to ask you questions about your tax return for 12 months after you’ve filed it. However, if they discover something wrong with it – whether or not by asking you a question – they may be able to ask for more tax for a longer period than that. There are rules to protect the taxpayer: you are safe from a discovery assessment if HMRC should be aware of all the circumstances from the information that you have provided and they have taken no action within the enquiry window.
It can be difficult to show that you have given them enough to satisfy this test, but some taxpayers have recently won appeals based only on this point – they had paid too little tax, but HMRC had missed the opportunity to collect it. One involved a supplier of medical locums who had no income for 10 years but still claimed loss relief for the expenses of trying to restore his registration with the General Medical Council. When HMRC finally realised that he wasn’t really trading they tried to take back some of the loss relief they had given him in previous years, but the Tribunal held that they had been given all the information and had done nothing about it at the time.
If HMRC start looking at past years, they may be able to collect more tax but you may be protected. We can advise you.
