HMRC crackdown could trigger fresh tax battles over decades-old returns

HM Revenue & Customs’ proposed overhaul of its tax error correction regime risks reopening disputes over returns filed up to two decades ago, prompting warnings from tax specialists that the reforms could significantly expand uncertainty for individuals and businesses.

Under draft proposals currently being considered, taxpayers who discover inaccuracies in documents previously submitted to HMRC would be under a legal obligation to notify and correct those errors. While ministers argue the changes are intended to strengthen compliance, advisers fear they could expose taxpayers to prolonged disputes over historic filings they believed had long since been settled.

Fiona Fernie, a partner at accountancy and advisory firm Blick Rothenberg, said the proposals would interact with existing statutory time limits in ways that could create substantial legal uncertainty.

HMRC currently has four years to assess underpaid tax where taxpayers have taken reasonable care, six years where errors are deemed careless, and up to 20 years where inaccuracies are considered deliberate.

The concern, Ms Fernie argues, lies in how HMRC interprets taxpayer behaviour. She said the department has become increasingly reluctant to accept that mistakes can occur despite reasonable care, raising the prospect that taxpayers who believed older returns were outside the assessment window could later find themselves facing fresh investigations.

Under the proposed legislation, a taxpayer who fails to notify an historic error because they believe HMRC is out of time could subsequently face allegations that the original mistake was careless. That failure to correct could then enable HMRC to pursue longer assessment periods and potentially higher penalties.

The proposals would also introduce a new Customer Correction Notice, giving HMRC formal powers to require taxpayers to review their affairs and either amend previous submissions or explain why no correction is necessary.

While tax advisers broadly support measures that encourage constructive engagement between HMRC and taxpayers, they argue the proposals should include a clear statutory cut-off point to prevent historic liabilities remaining open indefinitely.

The debate reflects a wider tension facing the tax authority as it seeks to improve compliance while providing certainty for taxpayers navigating an increasingly complex tax system.