Repayments of overdue tax
The measure
Legislation will be introduced in Finance Bill 2009 to change the basis of reclaiming overpayments of income tax, capital gains tax and corporation tax where there is no other statutory route.
Current legislation enables taxpayers to reclaim tax where an assessment is excessive due to a mistake in the claimant's tax return. Under current legislation when HMRC receive a claim they must determine what amount, if any, is just and reasonable to repay, taking into account all the relevant circumstances. The time limits for claiming repayments are currently five years and ten months or six years from the end of the period for which the return was made. Last year's Finance Act changed that time limit to four years from 1 April 2010.
No repayment is given where the return followed the general practice at the time it was made, or where the mistake is governed by another statutory claim.
The new measure will remove the requirement that the overpayment must be the result of a mistake in a return and that it must be made under an assessment. The measure will also make explicit that HMRC are not liable to repay an amount except as provided by the measure or another provision of the Taxes Acts. It will enable claimants to determine the amount to be repaid, subject to HMRC's right to enquire into a claim within the enquiry window for claims, normally 12 to 15 months, and to recover any related underpayments.
As claimants will determine the amount to be repaid, the rules regarding when and on what grounds a claim can be made will be set out in the new legislation. The current restrictions on the right of appeal will be removed, allowing an appeal to the courts on the same grounds as appeals against other matters.
Who will be affected?
This change applies to payers of income tax, capital gains tax and corporation tax who discover that they have overpaid tax.
When?
The new legislation will apply to claims made from 1 April 2010.
There had been no previous announcement of this change. The limited scope of mistake relief was criticised in a 2001 tax case, but it is not clear that the new measure is linked to that criticism. Extension of self-assessment to mistake claims is welcome. However the full extent and effect of the new measure is not yet clear.
