HMRC Compliance Checks FAQ

Time limits

41. What will the new time limits be?

The new assessing time limits will be:

Tax

Ordinary time limit

Tax lost due to careless behaviour, by the taxpayer or a person acting on his/her/its behalf

Tax lost due to deliberate behaviour, by the taxpayer or a person acting on his/her/its behalf

VAT

4 Years
4 Years
20 Years

Income Tax and Capital Gains Tax

4 Years
6 Years
20 Years

Corporation Tax

4 Years
6 Years
20 Years

42. What are current time limits?

The current assessing time limits are:

Tax

Ordinary time limit

Tax lost due to negligent conduct by the taxpayer or a person acting on his/her/its behalf

Tax lost due to fraudulent/dishonest conduct by the taxpayer or a person acting on his/her/its behalf

VAT

3 Years 3 Years 20 Years

Income Tax and Capital Gains Tax

5 years 10 months approx. 20 years 10 months approx. 20 years 10 months approx.

Corporation Tax

6 Years 21 Years 21 Years

43. What are the transitional arrangements for VAT?

The arrangements ensure that a VAT accounting period will not go out of time during 2009-10 and then come back into time on 1 April 2010. Assessments can be made going back to accounting periods ending 1 April 2006 throughout 2009-10.

44. What are the transitional arrangements for Income Tax, Capital Gains Tax and Corporation Tax?

The new time limits will not be brought in until 1 April 2010. This gives time for people to make claims for earlier years. For individuals outside self assessment, the new time limits for claims will not be brought in until 1 April 2012.

45. Can taxpayers still make late claims?

Taxpayers can make claims outside the normal time limits in certain cases. They will continue to be able to make late claims in similar circumstances.

46. Have the enquiry time limits changed?

No

47. What does careless and deliberate mean?

The definitions of ‘careless’ and ‘deliberate’ are the same as those used for penalties for an inaccurate return etc, as legislated in Schedule 24 Finance Act 2007. Guidance on what is ‘careless’ and what is ‘deliberate’ has been developed and has been consulted on.

48. Why is the VAT assessing time limit for tax lost due to carelessness different from that for Income Tax/Capital Gains Tax/Corporation Tax?

In VAT the return is received sooner, and received quarterly. HMRC therefore does not at present see a need to extend VAT assessment time limits beyond four years even where the taxpayer has failed to take reasonable care.

49. Why extend the time limit for failure to disclose a notifiable avoidance scheme?

Where a taxpayer uses certain schemes, there is an obligation to disclose this to HMRC. If the taxpayer does not disclose the scheme, HMRC needs more time to find these hidden schemes, to investigate their use to see whether tax has been unlawfully underpaid, and quantify any tax due.

50. Why extend time limit where a taxpayer fails to notify/register?

Taxpayers have a long-standing obligation to notify HMRC that they are liable to tax.

If a taxpayer does not notify HMRC, then HMRC may not find out about the taxpayer’s existence for some time. HMRC therefore needs more time to find these hidden taxpayers, to investigate their affairs and quantify the tax due.

An extended time limit removes a potential incentive for taxpayers not to notify liability, and hope they won’t be found and evade paying tax.

51. Why four years and not three years?

A number of different possible time limits were put forward in consultation to seek taxpayer representatives’ views.

Four years strikes a balance between the certainty for taxpayers provided by shorter time limits, and the need for HMRC to have sufficient time from receipt of a return to check the tax position and quantify any additional tax due.

52. What about people who don’t know they can claim?

HMRC will be targeting publicity at those likely to be able to make a claim. HMRC’s new PAYE service will mean that many repayments can be made without a formal claim. The time limits for people outside self assessment will not be reduced until 1 April 2012, to give time for publicity and new systems to take effect.

53. How will it help cross-tax working?

At present, if an issue is raised during a Corporation Tax check, it is often not possible to also check any VAT implications because the three year time limit for a VAT assessment may already have passed. Aligning time limits at four years gives a greater ‘overlap’ period where both Corporation Tax and VAT can be checked.

54. Why is the Corporation Tax Self Assessment (CTSA) closure process changing?

The current process for making amendments at the end of an Enquiry into a company tax return takes an unnecessarily long time. This causes unnecessary costs for companies and for HMRC.

In future the closure notice at the end of an Enquiry will set out the amendments which need to be made to a company’s CTSA return, and make these amendments. As now, if the company disagrees, it can appeal against the amendments. In short, CTSA will be aligned with the change made to ITSA years ago.

This change will take effect from 1 April 2010.

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