Has your tax investigation gone past its sell-by date and gone stale?

We can all look forward to our favourite treat only to be disappointed that is has gone stale.  Imagine how HMRC must feel when they are told a tax investigation has gone stale and the tax is no longer due.

Well, both can happen and both do happen.

How can a tax investigation go stale?

In my world, almost everything is driven by time limits.  The tax legislation sets out the rules for all parties to follow and this is particularly important during a tax investigation.  Taxpayers have time limits to submit tax returns – HMRC have time limits to investigate tax returns.  Not so long ago HMRC were told they could not collect £87m all because matters had gone stale!

Discovery assessments

Where HMRC identify income and/or gains that has not been taxed, they can raise discovery assessments under Section 29 Taxes Management Act 1970.  What constitutes discovery is continually being re-examined.  From HMRC’s point of view, they must be able to show that they did not have the necessary information to be able to understand that the liability shown in taxpayer’s return was insufficient.

A taxpayer can (and dependant upon the fact should) appeal against any discovery assessment and postpone any tax due.  But that is not what is at issue here.  Tax investigations are renown for going on for a long time.  However, for some of that time there is nothing going on.  Invariably it is HMRC that goes quiet without any explanation despite any periodic prodding by the tax adviser.

What constitutes going “stale”?

The Upper Tribunal has ruled that in one case, discovery become stale after 18 months.   This is not a clear deadline.  As ever, it depends upon the facts in each specific case. This means that not only are time limits important but discovery assessments must be raised in a timely manner.

So what can be done?

It is not down to the taxpayer (or their adviser) to tell HMRC what HMRC must do by a given date.  Rather it is the taxpayer (or their adviser)to tell HMRC when they have missed a deadline or time limit.  Good case management is therefore of paramount importance during a tax investigation.

Tell tale signs

So if you have along running tax investigation, check to see if all time limits have been met and whether any discovery assessment has also been raised in a timely manner.

Help is at hand

If you have a matter that you wish to discuss, please call me on 07979 313 010 or email me at paul@pmc.tax for a free no obligation consultation.

 

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