HMRC cannot reject income tax rebate claims as 'out of time'

The Upper Tax Tribunal has ruled that HM Revenue and Customs has no general right to refuse a taxpayer's claim for a refund of overpaid tax going back more than four years.

The case involved a solicitor, Andrew Higgs. In March 2008 his accountants prepared his self-assessment return for the 2006/07 tax year and sent it to him for his signature. He checked it over, ticked the box to claim a refund for the overpaid tax, and then forgot all about it.

Higgs did not realise he had failed to submit the form until November 2009, and did not actually file it until November 2011. By then it was clear that he had overpaid GBP27,000 in tax for that year, because he had made large payments on account (which are normally calculated from the previous year's income). However, HMRC refused to process the form or give him a tax rebate.

HMRC's policy has always been that s34(1) of the Taxes Management Act 1970 (TMA) sets a time limit on rebate claims, with the effect that no assessment to tax may be made later than four years after the end of the tax year concerned. This, according to HMRC, includes self-assessments, as well as its own assessments.

Higgs disagreed. He sought judicial review of HMRC's decision, arguing that s34 TMA applied only to HMRC's assessments. Even if it did apply to self-assessments, he said, HMRC had discretion to extend the deadline and should be made to do so under the European Convention on Human Rights.

The tribunal agreed with Higgs and rejected HMRC's position (which it has held for some years). Careful analysis of the legislation indicated that the s34 time limit was intended to apply only to assessments made by HMRC. Taxpayers have the right to file a self-assessment return many years after the end of the tax year concerned, and are automatically entitled to a rebate of any overpaid tax (Higgs v Revenue & Customs, 2015 UKUT 92 TCC).

This is a significant reversal of HMRC policy, but it has limitations, according to London tax accountants BKL. One is that Higgs' claim was only valid because he had never submitted a tax return for the year in question. He would not have been able to make a late claim if he had submitted an inaccurate return on time and then tried to correct it.

The second limitation, or ambiguity, is that taxpayers who were not required to file a tax return for the year in question may not be able to use the Higgs precedent. The time limit in TMA may only apply where the taxpayer has been issued a notice to file. However, this point remains uncertain.

'It seems that HMRC will now be forced to change [its] practice', commented BKL. '[It must] recognise that a self-assessment may be made at any time – at least, where a notice to file has been issued, and perhaps also where it hasn't – with the consequences that follow.'

Sources

• BAILII (PDF file)
• Accountingweb