Overpayment relief is a claim to be made if a taxpayer realises they have overpaid their tax. The time limit for claiming overpayment relief is four years from the end of the tax year to which the claim relates. The legislation for overpayment relief is contained primarily within TMA 1970, Sch 1AB (with further legislation contained at Para 51(4) Schedule 18 FA 1998 as amended and Para 31 Schedule 1 FA 2010 for corporation tax).
There are certain circumstances in which an overpayment relief claim will be automatically denied (TMA 1970, Schedule 1AB, paragraph 2), including for example, where the taxpayer could make the claim under different legislation. This article deals primarily with making a successful overpayment relief claim where the taxpayer is making a late claim.
Format of the overpayment relief claim
HMRC’s guidance contained in SACM12150 helpfully outlines the format of the claim. It states that for individuals,
“Overpayment relief claims must be made by the person who is due the relief”
To make a successful claim, “Overpayment relief claims must be made in writing and
- must clearly state that the person is making a claim for overpayment relief
- identify the tax year or accounting period for which the overpayment or excessive assessment has been made
- state the grounds on which the person considers that the overpayment or excessive assessment has occurred
- state whether the person has previously made an appeal in connection with the payment or the assessment
- if the claim is for repayment of tax, you must have documentary proof of the tax deducted or suffered in some other way as you may be required to provide this at a later date...
- include a declaration signed by the claimant stating that the particulars given in the claim are correct and complete to the best of their knowledge and belief
- state the amount that the person believes they have overpaid”
The legislation at Sch 1AB clearly states the time limit for making overpayment relief claims is four years from the end of the tax year to which the overpayment relates. However, HMRC are open to looking at earlier years, if the individual can demonstrate that the reason for the late claim was due to “circumstances beyond their control”.
When discussing tax, most advisers will be used to thinking about the concept of “reasonable” – did a person do everything it would be reasonable to expect a person in their situation to have done? On the face of it, reasonable care and beyond control seem similar, but in practise, they can be very different. Something that is beyond a person’s control (e.g. a natural disaster flooding the office, destroying records and all backup copies) will make it irrelevant whether they have taken reasonable care (by ensuring all records are regularly printed, reviewed carefully and backed up).
By talking about circumstances “beyond the taxpayer’s control”, HMRC are raising the bar and on the face it it, it seems very unfair – if a person has been careless resulting in a tax advantage to them, HMRC are entitled to go back and assess six years. If the carelessness results in a tax advantage to HMRC, the taxpayer can only go back four years. Nevertheless, this is the legislation and we work with it (for now). The courts have confirmed that “reasonable excuse” does not apply to overpayment relief claims or any other claims that are “optional” (see Raftopoulou v HMRC  EWCA Civ 818). This highlights the importance of ensuring tax returns are correct and that the processes in place for calculating income and expenses are working correctly. Every so often, a manual check/reconciliation could be very helpful.
Late claims - beyond the taxpayer’s control
From HMRC’s perspective, they are perhaps ‘doing taxpayers a favour’ by giving them the opportunity to going back further than the legislation permits, if there were circumstances that prevented the taxpayer from making the claim earlier. The legislation in Sch 1AB (governed by that in Schedule 1A) gives HMRC discretion to allow a late claim and HMRC officers follow the guidance set out at SACM10040 in deciding whether to allow a claim.
Advisers beware! If there is a tax overpayment that only come to light after the time limit for claiming overpayment relief has ended, and the miscalculation was due to an error by the professional adviser, then SACM10040 states HMRC will “not accept a late claim or election where it is substantially due to oversight or negligence on the part of the person, their agent or adviser”. Keep this in mind for potential PI claims.
Further, HMRC officers are advised that “It is very important that all other relevant considerations are taken into account. There may be exceptional cases which do not meet these conditions and are not covered by guidance concerning the particular claim or election, where it may still be unreasonable for HMRC to refuse a late claim or election.
Individual factors in isolation may not seem exceptional, but when viewed collectively the circumstances of the case could be considered to be exceptional.”
What this means is that HMRC must consider each person as an individual and not bring their expectations and life experiences to bear on another person’s situation.
A few things to consider if your client is in this position – is there anything that the client has been through, which they might have appeared to take in their stride, but in reality would have affected them to the point of not being conscious of everything going on in their business or financial affairs? Could this have affected their knowing about errors and making the claim on time? If there is, is it something they would be willing for you to disclose to HMRC?
It is important to be candid about these things to HMRC – for something to be beyond a person’s control does not mean that the person needs to have reacted rationally. We are all human and HMRC will have to appreciate this if the circumstances are presented to them correctly. In some situations, it is worth speaking to an objective third party with experience in these matters, if only to understand how the circumstances might be perceived by someone who does not know your client and to decide whether it is worth making the claim.
For a free consultation or to discuss any tax disputes, you can contact Mala Kapacee, Director of London Tax Network Ltd.