HMRC - 27.08.2020

When will HMRC run out of time to raise an assessment?

Your business has been subject to an enquiry about its returns. It has dragged on, with the officer requesting extra information. The officer must raise an assessment within certain dates, but how do these time limits work in practice?

Four-year rule

As a starting point, any errors that are more than four years old are out of time and cannot be adjusted. This rule works both ways, i.e. you cannot correct overpayments of tax you have made as well as underpayments. The four-year rule also applies to assessments raised by HMRC following a VAT compliance review.

Tip. In the case of input tax you have not claimed, you get an extra month to correct errors. The four-year window starts from the due date of the original return rather than the end of the period. For example, the latest time to claim input tax relevant to the June 2017 return would be 31 July 2021.

Trap. In the case of deliberate errors, i.e. fraud, HMRC has the power to go back 20 years rather than four. But the onus is on the officer to prove that VAT was deliberately underpaid, i.e. on the balance of probability.

Further time limits

When an officer starts a review of your business records, they must be aware of two further deadlines. They must raise an assessment by the later of the following dates:

  • two years after the end of the prescribed accounting period in question
  • one year after evidence justifying the raising of an assessment comes to light.

Example. ABC Ltd underpaid output tax on its VAT return for the quarter ended 31 March 2018 by missing out the takings for the month of February. If HMRC discovered the error on a VAT compliance review on 10 September 2018, the officer would need to raise an assessment by the later of the following dates:

  • 31 March 2020; or
  • 10 September 2019.

The date of 31 March 2020 is within the overall four-year window for the March 2018 quarter, i.e. it is before 31 March 2022.

Tip. You should be clear about these limits; some HMRC officers are not aware of them and raise out-of-time assessments. For example, if the visit above was conducted one year later on 10 September 2019, then the assessment would need to be raised by 10 September 2020 because this is a later date than 31 March 2020. The goalposts have moved.

Trap. The one-year time limit is only relevant if the officer has the full facts and information that enable an assessment to be raised. If important information is outstanding, then the one-year clock will not start running.

Appeals

If you think the officer has missed the deadline for raising an assessment, you have the right to appeal. The appeal can be made directly to the First-tier Tribunal but it is better to ask HMRC to review the decision internally. The review will be carried out by a separate officer to the one who raised the assessment. You should appeal within 30 days of the assessment being raised, giving full information about why you think it is out of time.

Tip. You can also appeal against any errors you think have been made in the officer’s figures.

Aside from the general four-year time limit, the officer must also assess tax before the later date of two years after the end of the period or one year after they had all the information available about the errors being corrected. Check this against any assessment, and appeal if it is out of time.

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