Legally how far back can the taxman look into someones past affairs if it appears they have failed to declare earning? i presume its around 5 years ?
if a person had undeclared there income by 12,000 per year for 4 years , would the taxman take what he was owed would this be the basic rate of tax plus interest and a fine ?
I believe it is seven years (at least that's how long you are supposed to keep records), except if criminal activity is suspected (in which case it is unlimited).
Do they have to *prove* criminal activity within the recent 7 years first (for which records will still exist), or just *suspect* it happened earlier (for which records are no longer available)?
It would be pretty unfair if they could just come along and say "we
*suspect* criminal activity more than 7 years ago, so pay us X more tax now" - and you wouldn't be able to prove that there *wasn't* any criminal activity, because you didn't keep those old records....
Are you saying that the IR doesn't have to *prove* any shennanigans, but can just have a suspicion that prior to 7 years ago something naughty may have happened - and the taxpayer has to pay up 'cos they can't then prove it didn't happen?
They have to prove it eventually but they would have to have some evidence to present a case. What I was meaning was that the evidence doesnt have to come from solely the taxpayers records - which wouldnt exist. This means that the tax payer can't just destroy old records and feel safe if they suspect there may be incriminating evidence from other sources.
Suppose (over 7 years ago) the taxpayer had "income" of X (big) and "expenses" of Y (also big, but not quite as big as X). Then:- (1) Taxpayer destroys their records over 7 years old; (2) IR come along and find evidence (elsewhere) of the X income, and notice that taxpayer only paid tax on (X-Y); (3) The IR assess further tax on the Y... (4) Taxpayer has no records to prove the Y expenses existed.....
Compare the income that the Inland Revenue have found evidence of with the income stated on the tax return. Is there an understatement?
The Inland Revenue can look at the net worth of the tax payer at the start and end of the period and see whether there is any material unexplained difference taking into account declared income and personal expenditure. I would think we would only be talking about very material amounts.
If there is evidence of fraud or negligence the Revenue can go back 20 years.
But then, what about cases where there is no need to disclose the amounts - and hence the tax return doesn't show them? For instance, no gains declared, for CGT purposes, on (what the taxpayer considers to be) PPR.
The Inland Revenue comes along later (after 7 years) and, for whatever reason, decides that PPR relief will not be allowed - and asks the taxpayer for CGT on the gain.
How does the taxpayer prove that the property actually was his PPR, over 7 years ago, with all those old records now destroyed?
"Peter Saxton" wrote
Couldn't the potential CGT on a residence that IR considers (at least in part) *not* to be PPR, be "material"?
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