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Sam, Accountant
Category: Tax
Satisfied Customers: 14195
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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How far back can the tax man investigate?

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How far back can the tax man investigate?

Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

Usually HMRC would open up an enquiry on just one specific tax year, but if there was reason to believe that not all was as it should be, then they do have the powers to go back as far as they like/need to.

If you could advise your concerns I may be able to offer advise more tailored to your needs.


Customer: replied 4 years ago.

Hi Sam

Thanks for your answer - I have been picked out randomly for a tax investigation and the tax inspector has picked up on one issue.

I bought my first house in 1998 for the sum of £42,500. I lived in it until May 2007 when I then released equity from it - in the form of a loan from my Mother - to buy the place I currently live in and rented out the first place.

I then took out a 'proper' mortgage in 2010 and paid back the vast majority of money to my Mother - £6,700 still outstanding.

I have been paying Mother interest on the loan and claiming tax relief on this interest.

Mother was not aware she needed to declare the money she received from me (the interest payments).

The tax inspector is investigating the year 2011/2012.

Hi Katina



Thanks for your response and the additional information



Yes mum should have declared the interest she was receiving as this additional income (over and above the loan repayment) would not have had any tax deducted from it - as not paid by bank or building society (who deduct the tax at source prior to the interest payment)


However at this stage its you HMRC are investigating - and you have claimed the interest as an allowable expense - I assume from rental income, that you received from this property from 2007 - so your tax affairs would seem to be in order. with no further concerns from HMRC, is this not the case?



Its just a question of your mother now making sure she makes a full declaration of the interest received - so this can be considered for tax purposes, because if this interest, along with any other income she has each year, is in excess of her personal tax free allowances, then tax will be due on the interest received.



Let me know if I can be of any further assistance. Thanks Sam

Customer: replied 4 years ago.

Hi Sam

Yes, you are correct, the interest was claimed as an allowable expense against the rental income. I believe my affairs are in order, but I am concerned that they may want to investigate my mother as part of this investigation. I am currently paying her interest of just £29 a month but when I first took out the loan, this amount was higher as the loan was higher.

My mother is very elderly and doesn't understand about tax issues.

Hi Katina

Thanks for for your response

HMRC may well use this as a reason to investigate your mother - but as things stand £29 x 12 = £348 a year - so tax due (if Mum is a basic rate taxpayer) is x 20% = £69.60 for these latter years.

So although this should be declared my advise
10 Phone HMRC as soon as possible, and let Mum provide the security questions required - to then you speak for her.
Then advise the officer, that Mum is in receipt of untaxed interest amounting to £348 a year - due to a loan she made to you, on which you are paying back the capital and this untaxed interest.

Also advise them that you will write in to advise the details for the earlier years, but wanted to make sure that the income was considered as soon as possible.

Then write a letter - initially declaring the last 6 years interest - so from 2008/2009 through to 2013/2014 and advise that this was an oversight -
HMRC may well just accept these 6 years and not ask for any details earlier than this, on which they will assess the tax due along with any interest (due to late declaration and payment of tax)
If they wish to look at earlier years they will advise, but if I am honest - its highly likely they will not bother as although the interest payments were higher back from 2007/2008 when you first released the equity, the amount of work involved raising out of year assessments, is likely to cost more.
Perhaps also get Mum to give you authority (within the same letter) to act on her behalf on this specific matter , and that all correspondence to come to you also - that way it will save Mum worrying, and having to deal with this issue.

I am about to meet up with clients - so if you have any follow up questions do please ask, and if you are happy to wait for me to respond, I shall do so on my return.

But do not worry - the amounts involved are not huge and this way you (on Mums behalf) are making sure that the matter is addressed rather than Mum have to face any investigation herself.



Customer: replied 4 years ago.

Hi Sam

Thank-you so much for your advice, much appreciated. I will speak to mother and endeavour to do as you suggest.

May I ask another tax question - I am the director and sole shareholder of a small limited company (also subject to the same tax investigation).

I have an office at home (I have a four bedroomed house, plus living room and dining room) and use two of these rooms for business use) and since I became a limited company, again in 2007, I have been offsetting two sixths of my utility bills, mortgage interest and council tax against the tax bill.

(The company renting office space in my home).

The tax inspector is saying this is incorrect and I should be claiming for use of the space as an employee which is a lesser amount, rather than as the company. Is this correct?





Thanks for your response

AS this is a new question, as per Just Answer policy, I am afraid this needs to be listed as such with a new amount offered. If you would like me to assist with the answer, then just ask for Sam Tax in your opening post.

But it would be appreciated if you could rate the level of service provided on this question, as this ensures I am credited for my time


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