For example, the SA return for the tax year ending on 5 April 2006 was due to be filed by 31 January 2007, so if you realise you have made a mistake in that return, you can “repair” it by writing to HMRC and enclosing an amended version of the return at any time before 31 January 2008.
There is, however, a more generous time limit for certain types of “error or mistake” provided by section 33 of the 1970 Taxes Management Act.
This says that, if you have paid too much tax as a result of “an error or mistake in a return”, you can make a claim for a repayment of the tax at any time within five years after the filing date for that return – so for the 2005/06 return, the time limit is 31 January 2012.
For example (and this was a real case), one of my Buy to Let clients did not realise that he could deduct the cost of certain repairs undertaken before a newly acquired property was first let. Once I had explained the rules to him, he was able to make a claim for the previous five years returns and get himself a substantial tax repayment.
Conditions for a claim under section 33
In order to claim this relief, you must fulfil the following conditions:
You have paid too much tax
Because of an error or mistake in a return
That sounds simple, but like most tax matters it is a little more complicated than that. There are certain circumstances where you cannot make a claim under section 33:
If your return was made according to the “practice prevailing at the time”, you cannot later claim error or mistake if the interpretation of the law changes later – for example, because of a decision in a court case.
If you made a deliberate choice to prepare your return in a particular way and later you find you would have been better off if you had done things differently, you cannot get relief. A good example of this is capital allowances – a trader has a choice of whether to claim these or not, and exactly how to claim them. In some cases making that choice requires you to predict the future – for example, if you are only liable at the basic rate of income tax this year but expect to be liable to higher rate tax next year, it might make sense not to claim capital allowances for the basic rate year so that you could carry them forward to the higher rate year. If you decide to do this and then find you are not paying higher rate tax as you expected, then that is your hard luck as it was not an “error or mistake” – it was just an unlucky judgement call.
Claims Included in a Return
This is where it gets technical. Section 33 does not apply to an error or mistake in a “claim”. Here, “Claim” has a precise technical meaning and it would take more space than I have to go into this, so instead here are two examples:
If you make a loss in your trading business, you can make a “claim” to set that loss against other income of the same tax year (this is known in the trade as “sideways relief”). The time limit for such a claim is 12 months after the filing date for the return concerned – in other words, the same time limit for a “repair” to a self assessment return described at the beginning of this article. If you miss that deadline, you cannot reopen the matter using section 33 because this is a “claim” and section 33 does not apply to it.
You do not have to “claim” business asset taper relief (“BATR”) – it is automatically due if the asset you disposed of is a “business asset”. This means that if you file a return and pay too much Capital Gains Tax because you mistakenly thought your asset did not qualify for BATR and then you later discover that it did, you can make a claim for error or mistake within the five year time limit for section 33
Therefore, as a broad rule of thumb, where you have to make a choice as to whether to “claim” something or not, you are stuck with whatever the statutory time limit for that claim is, whereas if you were entitled to something and did not realise it, section 33 will help you to get the relief you should have had.
A Can of Worms?
When you make a claim under section 33, HMRC are required to “enquire into the matter and …give by way of repayment such relief in respect of the error or mistake as is reasonable and just”.
That sounds fine, but the section also says HMRC must “have regard to all the relevant circumstances of the case”. HMRC say this rule has “a wide scope” and will do a thorough review of your file to make sure that there are no income or gains (in the section 33 year or any other year, whether in date or not) which have escaped tax in the past. Even if this tax is now out of date so that they cannot claim it directly from you, they can use it to reduce the repayment due under section 33. So, if you think there may be some skeletons in the cupboard, bear in mind that section 33 will allow HMRC to open it and have a good rummage through before they give you your repayment!