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If you run a business or have additional sources of income, one of the most important responsibilities you face is paying the right amount of tax. HMRC has wide powers to check your affairs, and a common concern is:
“How many years can HMRC go back when they investigate my taxes?”
The answer depends on whether your mistakes were innocent, careless, or deliberate. HMRC can typically look back four years, but in serious cases, they can reach back as far as 20 years. This guide explains how investigations work, what triggers them, and what you can do to protect yourself.
How Do You Know HMRC Is Investigating You?
An investigation begins with a formal letter from HMRC. It will outline the scope of their review and request supporting documents, such as bank statements, receipts, invoices, payroll files, or VAT returns.
This isn’t something you can ignore. If you don’t cooperate, HMRC can escalate matters quickly, increasing penalties and even moving towards criminal action. If you’ve already received a compliance check, our HMRC investigation support team can help you respond effectively.
How Far Back Can HMRC Look?
The time limits vary:
- Four years – if the mistake was genuine and you took reasonable care.
- Six years if HMRC decides the error was due to carelessness.
- Twenty years – if they believe the underpayment was deliberate, fraudulent, or concealed.
This means HMRC has the power to review almost your entire business history in the most serious cases. For example, undeclared offshore income or falsified records can lead to scrutiny spanning two decades.
Why Might HMRC Investigate You?
Investigations are not limited to big companies. HMRC can open a case against anyone, from sole traders to large corporations.
Sometimes HMRC selects cases randomly, but they often focus on patterns in your tax returns. They may notice repeated mistakes, sudden changes in your income, or profits that seem unusual for your industry. HMRC also looks at your lifestyle. If your spending is much higher than your reported income, they will want you to explain it.
Whistleblowers also play a role — a disgruntled employee, competitor, or even a client can inform HMRC.
What Happens If HMRC Finds Problems?
The outcome depends on the seriousness of the issue. If the mistakes were innocent, you may be asked to repay the tax due — and in some cases, HMRC may even refund you if you have overpaid.
If HMRC considers you careless, they can apply penalties of up to 30% of the unpaid tax.
If they believe your actions were deliberate, penalties rise sharply. This can mean up to 70% of the tax owed, and where fraud or concealment is involved, 100% for UK income and 200% for offshore income.
In the most serious cases, HMRC may pursue criminal prosecution, which could lead to a criminal record or even imprisonment. If HMRC suspects deliberate wrongdoing, they may issue a COP9 tax investigation notice. Acting quickly at this stage is vital to avoid prosecution.
How Do Investigations End?
An HMRC investigation usually concludes in one of two ways:
- Decision Notice – a formal letter setting out HMRC’s findings and how much you must pay.
- Contract Settlement – an agreement between you and HMRC to settle the matter, typically including tax, interest, and penalties.
How Can You Protect Yourself?
The best way to avoid a stressful HMRC enquiry is to stay ahead of compliance. That means:
- Keeping full and accurate records, including invoices, bank statements, and VAT returns.
- Filing returns on time and ensuring accuracy, especially with Making Tax Digital (MTD) requirements.
- Explaining unusual patterns in your returns, such as sudden profit drops, so HMRC sees a clear reason upfront.
- Seeking advice early. A tax adviser can help prepare your records, respond to HMRC, and minimise penalties if mistakes are found.
For additional support, please visit our tax dispute resolution services.
Offshore Income and Foreign Assets
Since Brexit, HMRC has strengthened its approach to overseas income. Through international data-sharing agreements, HMRC can now see details of foreign bank accounts, property ownership, and offshore investments.
If this income has not been declared, HMRC can investigate up to 20 years’ worth of tax returns, with severe penalties. This is particularly relevant for landlords with overseas properties or individuals with undeclared foreign investments.
Our foreign property income service helps ensure you stay compliant and avoid these costly penalties.
HMRC can review tax returns for up to four years for genuine mistakes, six years for carelessness, and up to twenty years for deliberate underpayment. Investigations can occur to anyone, regardless of the size of their business. Most enquiries aim to ensure the correct tax is collected, not to pursue legal action. Staying organised and seeking expert help can protect you and your business. If you’ve received an HMRC compliance check or investigation letter, contact our specialist tax accountants to minimise penalties and resolve the issue efficiently.