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HMRC internal manual

Compliance Handbook

Assessing Time Limits: Extended time limits: Examples of careless behaviour

Example 1

Anthea, a self-employed plasterer is registered for VAT. During an enquiry it is discovered that two small jobs have gone unrecorded and consequently her profits and her self-assessments to income tax have been understated. The officer establishes that she kept only haphazard records of her business transactions due time consuming family commitments.

The officer decides that Anthea has been careless. She has failed to take reasonable care. Income tax assessments to recover the under-assessed tax can be made for any year not more than 6 years past. VAT assessments can only be made for a prescribed accounting period not more than 4 years past.

If the under-assessment is discovered on 19 January 2014 you can, at that time, make

  • income tax assessments for 2007-08 onwards, and
  • assessments to recover any under-declared VAT for prescribed accounting periods covering January 2010 onwards. Any delay in making the assessments may mean that the earlier periods go out of time.

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Example 2

Brian has made full and accurate returns and self-assessments of his business income for many years. In 2010-11 he inherits a house and lets it to a tenant but fails to declare any rental income for that year. In 2013-14 Brian sells the house but does not disclose the gain on his return. No enquiry was opened in to either year and the investigator discovers both these matters during a subsequent check.

Based on the evidence that he gathers the officer is satisfied that in relation to the rental income Brian had thought that he could offset the income with the costs of his own time that he had spend on repairing and letting the property. Brian was able to demonstrate to the officer that he had briefly consulted HMRC’s guidance and had thought that the property sale would be exempt from Capital Gains Tax. Brian accepts that a reasonable amount of reading would have told him otherwise.

The officer is satisfied that in relation to each inaccuracy Brian’s behaviour was careless. A prudent and reasonable man taking reasonable care would not have omitted these items. The investigator will have until 5t h April 2017 to raise a discovery assessment for 2010-11 and until 5t h April 2020 to raise the 2013-14 discovery assessment.

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Example 3

Charles is issued with notices to make SA returns but for 6 years fails to do so, accepting and paying the tax on a succession of HMRC determinations. Later it is discovered that his true liability exceeds the HMRC determinations. You are satisfied that Charles thought he was paying more than the right amount of tax but did not want to go to the expense of preparing accounts and returns. He has no reasonable excuse for his failure to make returns and has been careless. Assessments can be made for any year of assessment ending not more than 6 years ago.

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Example 4

Doris Ltd is the subject of an employer compliance review. You discover that income tax under PAYE has not been deducted and accounted for on certain bonus payments to employees. The directors explain that they queried this very point at some length with their normally very competent and reliable tax accountants but were told by them to pay the money gross.

You can make assessments to recover the underpaid tax for the preceding 6 years on the basis that the company’s agents have been careless. In the circumstances, competent agents taking reasonable care would not have given that advice.