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A recent High Court case has confirmed that the Revenue may raise an assessment at any time up to 10 years after the end of a tax year, even where the taxpayer fully complied with his reporting requirements on a timely basis.
The case of the Criminal Assets Bureau v Gerard Hutch involved a Revenue claim in the impressive amount of £1,984,626.44 together with interest thereon in an amount not specified. Having regard to the fact that the tax years in relation to which the claim was made go back as far as 1987/88, the amount of the interest may well have been almost equally impressive.

Because of the involvement of the Criminal Assets Bureau the case attracted some media attention. However it has significance for taxpayers who will never come in contact with the Criminal Assets Bureau. One of the defences raised by the taxpayer against the claims by the Criminal Assets Bureau to recover the tax was that the assessments in question had been raised later than the deadline for the raising of assessments. The taxpayer claimed that under our self-assessment regime which was introduced in 1988, an assessment must be raised within six years from the end of the tax year in which a tax return was delivered. In most cases that would mean the assessment must be raised within seven years of the end of the tax year to which it relates.

It was widely believed that that deadline did represent the effective deadline for raising an assessment, where no fraud or neglect on the part of the taxpayer was involved. Indeed, that deadline of six years had been the subject of much unfavourable comment from taxpayers and advisers on the basis that the Revenue should not require such a long period to finalise a tax liability. A period of six years seemed an unreasonably long time to leave a compliant taxpayer in limbo as regards his final tax liability.

The decision in the Hutch case therefore came as a surprise, and makes worse what was perceived to be an already bad situation. Very few businesses retain their full accounting records for a period of ten years after the end of a tax period. Even if they did, the unearthing from stores or old computer files of such material and its interpretation by a whole new generation of management and staff would be a daunting task. Nonetheless, unless the High Court judgment in the Hutch case is overturned in the Supreme Court, or legislatively reversed, businesses would have to contemplate retaining records for a longer period if they wished to be able to effectively resist a re-opening of an assessment by an Inspector.

Under present law there is no time limit for the re-opening of an assessment or raising of an assessment where there is fraud or neglect involved. That position is at least defensible. But where there is no fraud or neglect involved, either a ten year or a six year period of uncertainty for a taxpayer is clearly excessive. Even the ‚€ėCode of Practice for Revenue Auditors‚€ô published by the Revenue indicates that the period covered by a Revenue audit will be ‚€ėnormally a current year/period.‚€ô Hopefully the Hutch case will push us into the introduction of a reasonable time limit beyond which compliant taxpayers will have certainty in their affairs.

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