Mark McLaughlin highlights a tribunal decision that may help taxpayers wishing to claim tax overpayments for earlier years.
When can you claim overpaid tax?
The tax system is full of time limits, so taxpayers and their advisers need to be constantly on their guard. For example, the normal time limit for claiming overpaid income tax or capital gains tax (CGT) relief is four years after the end of the tax year to which the claim relates (TMA 1970, s 43(1)).
Similarly, as a general rule HM Revenue and Customs (HMRC) is restricted to a four-year time limit for making income tax or CGT assessments (TMA 1970, s 34(1)).
Taxpayers will sometimes need to submit tax returns for earlier tax years. It might seem odd that HMRC could seek to reject tax returns on the grounds of them being submitted too late. However, could this happen if (for example) the taxpayer has overpaid tax for the year to which the return relates?
Time-barred tax returns and tax overpayments
In The Queen (oao Higgs) v Revenue & Customs [2015] UKUT 0092 (TCC), the taxpayer made self-assessment payments on account for 2006/07 of £46,317. He filed his tax return for 2006/07 on 2 November 2011, which showed a tax liability of £18,830, resulting in an overpayment of £27,487.
However, HMRC considered that the tax return was time-barred. This was on the basis that the time limit for filing the return was four years, and this limitation period (in TMA 1970, s 34(1)) expired on 5 April 2011. The taxpayer sought judicial review, as HMRC’s decision meant that his payments on account were conclusive, and the tax overpayment was irrecoverable.
The Upper Tribunal held that the four-year time limit in s 34(1) has no application to self-assessment returns. The reference in s 34(1) to ‘an assessment’ did not include the taxpayer’s self-assessment. Thus the four-year time limit in that legislation did not apply, and the tribunal ordered HMRC to process the taxpayer’s tax return, including his self-assessment for 2006/07.
When Tax Overpayments Can’t be Claimed
Helpful, but…
The decision of the Upper Tribunal in Higgs is obviously good news for those taxpayers who may otherwise have been unable to reclaim tax overpayments from more than four tax years ago. However, it should be noted that the tribunal’s decision only apparently relates to self-assessment returns, and not (for example) overpayments arising from claims made outside the return, for which the four-year time limit in TMA 1970, s 43(1) is the general rule.
Furthermore, there is anecdotal evidence that HMRC will not consider ‘late’ self-assessment returns in respect of tax years for which a determination has been issued to the taxpayer (under TMA 1970, s 28C). Such a determination is generally treated as a self-assessment, and is automatically replaced if the taxpayer submits an actual self-assessment within the time limit stipulated in s 28C.
In addition, the Higgs decision will presumably not allow taxpayers to make ‘late’ amended returns, as there is a separate statutory time limit for making amendments, i.e. within twelve months from the ‘filing date’ in respect of the return (TMA 1970, s 9ZA).
How Far Back Can You Claim Tax Overpayments?
Game, set and match?
How far back in tax years could taxpayers go in filing self-assessment returns in order to reclaim overpaid tax or payments on account? Self-assessment was introduced in 1996/97, so it appears that returns could be submitted going back that far.
However, in Higgs the taxpayer’s return was submitted in response to an HMRC notice to file the return (under TMA 1970, s 8). Thus the decision in that case would not appear to cover ‘unsolicited’ tax returns submitted in the absence of a tax return filing notice.
Practical tax overpayment tip:
It is not known at the time of writing whether HMRC will appeal the Higgs decision. However, taxpayers who have not submitted tax returns showing potential tax overpayments because the returns were assumed to be ‘too late’ should review their tax affairs, and consider filing the returns as a precaution against any future adverse change in the law.
