HMRC Tax investigation time limit

If you’ve been told that you’re facing a HMRC tax investigation, you probably have many questions. We’re here to advise you regarding the HMRC tax investigation time limit.

What is a HMRC tax investigation?

Firstly, it is worth noting that a HMRC tax investigation doesn’t always mean that they think you have done something wrong. In some cases, HMRC will select a number of businesses and check their finances. This helps them to ensure that you are paying the correct amount of tax.

These tax investigations can be regarding current finances or historically. If it is found that you have not paid the correct amount of tax, you will be expected to pay it. However, sometimes people pay too much tax and should receive this excess money back.

Stages of a tax investigation

There are various types of tax investigations you may face, including a full, aspect or random check. These will likely depend on the reason for the investigation – we’ve listed some of these below.

The first stage of the tax investigation is the initial contact from HMRC. They will likely contact you by phone or letter to advise you that they will be completing the investigation. This is known as an official HMRC investigation letter and should contain your company’s information. They may or may not inform you of the reason for the investigation.

HMRC are required to inform you of the financial aspects they will be assessing. These can range from tax, VAT, PAYE and more. It’s a good idea to invest in an accountant or a good accounting software package, at the least. This will help you when it’s time to file tax returns. The company directors are responsible for paying the money you owe HMRC.

After this, a member of staff at the HMRC will request a call or in-person visit with you. They will ask you questions about the financial aspects in question. You should comply and provide the information they request from you. As a director, you can ask why you’re being investigated, but it will still continue.

The next step depends on what’s found. Underpaid or overpaid tax will be dealt with accordingly. If you are found to have purposely committed wrongdoing, you’ll face further investigation and consequences.

In some cases, you may be able to sign a contract settlement where you agree to pay the money back within a specified time period. HMRC will send you a letter containing the outcome of your tax investigation.

tax investigation

What is the HMRC tax investigation time limit?

Generally, HMRC has 12 months from the end of the tax year to start an investigation. However, if they have reason to believe you have been careless or dishonest, they can review taxes from up to 20 years previously. A tax review after the 12-month period is named a discovery assessment.

Investigations into your VAT must be completed within 4 years. For tax, suspicions of carelessness can be investigated for up to six years. If HMRC believes that you are committing tax evasion or tax fraud, they can review previous taxes for up to 20 years.

HMRC are completely free to review your tax payments through the history of your company. If they believe there is an issue with your tax affairs, they can start an investigation into your company.

How likely are you to be investigated by HMRC?

There are a number of reasons why HMRC may choose to conduct a tax investigation on your business. Depending on the severity of these reasons, they may be more likely to complete the investigation. Additionally, if you have failed to pay the correct tax on time previously, they may be more likely to investigate your company.

Here are some of the reasons you may face an investigation:

  • Your industry typically only accepts cash payments
  • Your self-assessment tax return is frequently late or is inconsistent
  • You earn highly compared to the rest of your industry’s tax returns
  • Someone has contacted HMRC about your business’ tax affairs
  • HMRC are specifically looking into your industry

There’s nothing you can do about a tax investigation, and you are required to cooperate with every aspect. This may include providing business records, bank statements, expense receipts and tax calculations.

How long does a tax investigation take?

How long HMRC tax investigations take depends on many factors. If you can prove that your accounts are correct, then you may be able to resolve the investigation sooner. However, company tax investigations can last over 12 months and even years.

You should always comply with the HMRC during a tax investigation, as failing to could lead to further problems for yourself. The sooner you comply, the sooner HMRC can come to a decision regarding your tax affairs.

Those who have been dishonest with their taxes will face a longer investigation and further consequences. HMRC tax investigation penalties can include having to pay up to 200% of the tax owed. Those who are required to pay the excess tax will likely have around 30 days to pay it back with interest.

HMRC tax investigation

Can HMRC check your bank account?

Yes, HMRC is able to check your bank account. This is so that they can be sure that you have paid the correct amount of tax.

Does HMRC check all self-assessments?

Yes, all self-assessments sent to HMRC are processed fully to ensure that the correct amount of income tax has been paid. Usually, the processing stage is automated, but any issues will be flagged up to be checked thoroughly. Every self-assessment tax return is checked.

As well as self-assessments, HMRC also check other financial aspects such as corporation tax, capital gains tax, VAT and more. This is alongside your income tax.

We hope this blog has been useful regarding HMRC tax returns and investigations. If you have any questions, we’re always happy to help. We’re here to advise you as the director and get you the best outcome. Seek professional advice today regarding your tax position.

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I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.

I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors. 

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