Time limit to reclaim overpaid tax to be slashed by a year
9th June, 2008
HM Revenue & Custom’s (HMRC) cut in the time limit on claims for rebates of overpaid tax from five to just four years could leave taxpayers unable to reclaim huge amounts of tax they would otherwise be entitled to, warns our tax experts.
The Finance Bill 2008, which is currently before Parliament, will amend the Taxes Management Act 1970 so that HMRC will only have to repay overpaid tax going back four years instead of five1. HMRC, however, will often still be able to recover underpaid tax for longer than the four-year limit.
44% of claims are for tax refunds which go back 6 years with the average claim being £1,963 for the 6 year period.2
According to our experts, the new changes will particularly disadvantage pensioners because many are paying too much tax on pension annuities due to incorrect PAYE codes. HMRC estimated 200,000 pensioners paid too much tax last year.
HMRC is currently replacing the old system of taxing pensioners’ annuities whereby 22% income tax was automatically deducted from most annuities at source regardless of how much tax there was to pay.
Our experts also point out that pensioners have more generous personal allowances than the under 65s, so the amount overpaid is likely to be greater than other taxpayers and they are more likely to be unrepresented by agents.
Rob Durrant-Walker, Tax Manager at our York office, comments: “The changes are weighted in HMRC’s favour. If taxpayers are careless, HMRC can demand back tax of more than four years, but if HMRC is careless and collects too much tax, taxpayers will only be able to seek redress for four years overpaid tax.”
“Pensioners will be hit particularly hard. Thousands of pensioners have been paying too much tax because of incorrect PAYE codes, so many of them will not be able to recover the full amounts which they are due.”
“It’s one rule for HMRC, one rule for the taxpayer. In the case of pensioners being overtaxed, the fault lies with HMRC. Other taxpayers could also be hit as you can bet that when there is extra tax to be collected HMRC will try to use spin and allege neglectful behaviour from the taxpayer in order to get around their own time limit.”
He adds: “HMRC does not proactively identify which taxpayers have overpaid, and it can take years for overpaid tax to come to taxpayers’ attention. Taxpayers without agents representing them will be at an even greater disadvantage.”
1 Strictly from 70 months to 58 months i.e. a taxpayer will only be able to go back four years to the 31 January following the end of the previous tax year, which for 31 January 2009 would be the tax year ended 5 April 2004.
2 TaxHelp for Older People
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