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HMRC have explained the recently introduced overpayment relief and the practice generally prevailing after the judgment of the Court of Appeal in the Franked Investment Income Group Litigation case.
Overpayment relief replaced error or mistake relief for income tax, capital gains tax and corporation tax from 1 April (see TMA 1970, Sch 1AB).
Guidance on the new relief can be found in HMRC’s Self Assessment Claims Manual at paragraph 12000 onwards.
Other formal or informal processes for reclaiming overpayments have not changed.
Claims must be made within four years of the end of the tax year or accounting period to which the claim relates. This time limit does not apply where the claim relates to a mistake in an individual’s 2004/05 or 2005/06 self-assessment return if he or she was not given a notice to make the return within 12 months of the end of the tax year.
The time limits for claims in these cases are 31 January 2011 and 31 January 2012 respectively.
Both error or mistake relief and overpayment relief have an exception where the tax was calculated in accordance with prevailing practice at the time.
The taxman has considered the comments of the Court of Appeal concerning prevailing practice in the Franked Investment Income Group Litigation.
In the view of the court, the practice generally prevailing exception is to be read as subject to the limitation ‘that it applies only if and to the extent that the United Kingdom can consistently with its [EU] treaty obligations impose such a restriction’.
The court concluded that practice generally prevailing does not affect a claim for repayment of taxes paid in breach of EU law.
HMRC understand this principle also applies to the new overpayment relief.
Therefore, if a claim for error or mistake relief or overpayment relief relates to taxes paid in breach of EU law, the Revenue will not seek to disallow it on the basis that the tax liability was calculated in accordance with the prevailing practice.
The other conditions for error or mistake relief and overpayment relief, such as time limits, will still need to be met in all cases.
