How far back can HMRC go for underpaid tax?

Many wrongly assume that, after a certain amount of time, HMRC can no longer chase up unpaid tax. The reality is that HMRC can chase up unpaid tax for as long as they like. But how far back in time can they investigate?

In this article, we’ll discuss how far back HMRC can chase after unpaid taxes, whether HMRC debt can be written off, whether dissolved companies can be pursued for tax, if HMRC can recover tax if you move abroad, and whether they can reopen previously closed cases.

If you need help with a potential or ongoing HMRC tax investigation into your personal or business finances, please get in touch with our tax solicitors at Holborn Adams today.

How far back can HMRC chase unpaid taxes?

Section 37 of the Limitation Act (1980) states that there is no time limit for HMRC to pursue tax debt once they begin an enquiry. Recovering unpaid HMRC debt is seen as being in the interest of the public, therefore its recovery doesn’t abide by the same time restrictions as other types of debt.

Section 9 and 24 of the act state that recovering unpaid National insurance contributions (NIC) can only be done for 6 years.

Although there is no time limit for debt recovery, HMRC can’t randomly investigate through decades worth of tax returns for any company on a whim. They need to have a genuine reason for investigating, and they must begin an enquiry no more than 12 months after the date a tax return was filed. Once the enquiry begins, they can dig deeper into your files indefinitely.

HMRC’s investigations can only go back a certain amount of time based on how serious the situation is, as outlined in the table below:

As the investigation progresses, HMRC can reclassify the case severity if new evidence comes to light that you were taking deliberate measures to avoid tax. This means they can go further back to search for more unpaid tax.

How long before HMRC debt is written off?

Unlike other types of debt, HMRC debt cannot be written off.

Once HMRC is aware of the debt you owe to them, they have authority to recover the debt in a variety of ways:

• Instructing bailiffs/debt collection agencies to come to your home.
• Applying for a County Court Judgment (CCJ), allowing bailiffs to seize goods, etc.
• Direct earnings attachment – contacting your employer and arranging for money to be deducted from your monthly pay.
• Begin bankruptcy proceedings against you.

You should seek legal advice as soon as possible to help you negotiate a better deal with HMRC, such as setting up a “Time to Pay” arrangement, allowing you to spread payments over a longer period of time.
 

Can HMRC chase a dissolved company for unpaid taxes?

HMRC still has the power to recoup unpaid taxes from dissolved companies.

Unlike other debts, when a company goes into liquidation, the debt is not written off. Since the company is not actively running, the debt may go unpaid, but it never disappears.

When you request to dissolve your company, HMRC will be notified as they are a major creditor. They may object to the application to dissolve the company so they can pursue ways of recovering the unpaid tax.

If the dissolution goes ahead, HMRC can sometimes request that the company is restored to the register of companies so they can keep collecting the owed taxes. It’s unlikely that they would do this since it is a lengthy and expensive process – but it’s important to note that they have the power to do so.

Directors of dissolved companies with HMRC debts may be issued with an HMRC Personal Liability Notice, so it’s important to understand that dissolving a company is not an “easy way out”.

Can HMRC chase unpaid tax if I move abroad?

There are many ways for HMRC to find out about undeclared income. HMRC can still track you down and has the authority to recover unpaid tax, even if you aren’t based in the UK anymore.

Mutual Legal Assistance Treaties (MLATS) allowed HMRC and foreign government agencies to easily transfer information to assist investigation of criminal offences.

Can HMRC reopen previously closed cases they were investigating?

Yes. If information comes to light that you may have underpaid your tax, HMRC can reopen a case they already previously investigated and closed. HMRC investigation cases are never truly closed.
 

Worried about an HMRC tax investigation?

If you’re worried you may be, or already are, the centre of an HMRC tax investigation, it’s crucial you seek legal help as soon as possible.

Whilst your initial inclination may be to speak to an accountant, you should know they are bound by law to report tax evasion activity to HMRC. This gives you little time and opportunity to construct the best, lawful plan for tackling your underpaid tax.

By instructing a solicitor to help you, you are covered by “legal privilege”, meaning they cannot legally share anything you tell them with anyone else. They can then instruct accountants for technical expertise, and they also become bound by legal privilege.

At Holborn Adams, our tax fraud solicitors confidently handle cases like yours all the time – please call us urgently so we can secure you the best possible outcome.

Holborn Adams