Clients want to know when their tax returns have been accepted and generally, it is fair to say that, once the enquiry window has closed, HMRC have accepted the figures. 

The Enquiry Window

Provided the return is delivered on or before the filing date, generally the window closes 12 months after the date of delivery.

If the return was delivered after the filing date then HMRC can enquire up until the quarter day following one year after the delivery.

Window has Closed

However, what happens if HMRC wants to enquire into a year for which the enquiry window has closed?

HMRC are able to “discover” unassessed income or gains if HMRC could not reasonably have been expected, on the basis of the information available/provided to them, to be aware of an understatement of tax in the return. They may also be able to discover additional tax on the grounds of fraudulent or negligent conduct on the part of the taxpayer or someone acting on his behalf.

The time limits for making such discovery assessments are changing with effect from 1 April 2010 and whilst the time periods for making such discovery assessments are generally shortening, HMRC are expected to be more ready to allege deliberate or careless submissions of understatement in order to make sure they can continue to assess for as long a period as possible, thereby also increasing the rate of any penalty found to be chargeable.

• If reasonable care has been taken when the return has been submitted, HMRC will now only able to go back four years.

• If however HMRC can show carelessness, it can assess up to six years after the end of the year of assessment or accounting period.

• If it can show the error leading to the understatement was deliberate, then it can assess up to 20 years after the end of the period.

It is likely that HMRC will issue a flurry of protective assessments under the old rules in the period leading up to 1 April 2010 and whether the assessment is received on or after 1 April 2010 each assessment has to be carefully checked in order to ensure they are in time.

Posted on 25 Jan 2010