The Times They Are a-Changing – Time Limits for Claims and Assessments

The Times They Are a-Changing – Time Limits for Claims and Assessments
Many years ago, when I was still a Tax Inspector, my girlfriend at the time got a job as the “Practice Manager” for a partnership of GPs. Some of the staff, particularly the secretary who had been doing the job previously, were rather sceptical about whether she was bringing much to the party, but they soon changed their minds.


One of her responsibilities was to do the PAYE for the practice staff, and having a tame (and somewhat infatuated, at the time) Tax Inspector at home, she quickly discovered that two of the staff had been married for a number of years but had never claimed the “Married Couple’s Allowance” (I told you this was many years ago).


The staff, under her guidance, were able to make a claim for the MCA going back for six years, and both got substantial tax repayments as a result. Their doubts about the new Practice Manager’s usefulness disappeared overnight.


No system is perfect, and mistakes are made. Not everyone is as careful or as honest as they should be, and so incorrect tax returns are submitted. The question is, how far back can you go to correct mistakes when they are discovered, or to get in the correct amount of tax when it has been underpaid?


At present, these are the basic deadlines:


One year

You have to file your tax return by 31 January following the end of the tax year, so the tax return for the year ending 5 April 2007 was due for filing by 31 January 2008. Assuming it was filed on time, you have one year (to 31 January 2009) to make any amendments (or “repairs” as HMRC call them) if you realise it is incorrect, and the same time limit applies to HMRC if they want to “enquire” into the return.


Five years

The time limit for making an assessment to tax is currently five years after the filing date, and this applies where HMRC make a “discovery” that you have paid too little tax. There has been much argument about exactly what constitutes a “discovery” for this purpose, but broadly speaking, HMRC have to show that they have information that was not included in the tax return and which tells them that you have paid less tax for the year in question than you should have done. That 2006/07 return, therefore, remains vulnerable to a “discovery” by HMRC until 31 January 2013.


The same time limit applies where the taxpayer realises he has made a mistake and paid too much tax, or not claimed certain tax reliefs he is entitled to – though there are complicated and strict rules governing exactly what sort of mistakes can be corrected in this way.


Twenty Years

This applies where HMRC discover that there has been “fraudulent or negligent conduct” by the taxpayer – regrettably, it does not apply in reverse to fraudulent or negligent conduct by HMRC!


All these time limits are due to change, from a day to be “appointed”, but widely expected to be April 2009:


One year

The time limit will remain the same, but the clock will start running when the return is filed, not on the last possible filing date of 31 January following the year end. If you file your return for 2008/09 by, say, 31 May 2009, then the time limit for HMRC “enquiring” will expire at the end of May 2010 – and the good news is that you will still have until 31 January 2011 to amend it yourself.


Four years

The new time limit for HMRC to make a “discovery”, or for you to make a claim for “error or mistake”, will be four years after the end of the year of assessment, which is almost two years shorter than the current limit.


Six years

This is a new time limit, and related to tax lost by a “failure to take reasonable care” by the taxpayer. This is itself a new definition, and it remains to be seen how HMRC will try to distinguish it from the next time limit:


Twenty years

This limit now applies where the taxpayer has “deliberately” under declared their tax liability, or where they have used a tax avoidance scheme which should have been notified to HMRC but was not.


The time limits for other taxes such as Capital Gains Tax, Corporation Tax and VAT, are all being changed as well, to conform to these new time limits.


In many ways, these new time limits make sense. With modern information systems, less time is needed to check and to verify information.


My only real concern is for those taxpayers who do not enjoy professional advice, like the nurses working in my girlfriend’s practice all those years ago. Once these new rules come in, they would only get a repayment for the previous four, not six years. It is typically those on PAYE who will suffer from the reduction in the time limit for error or mistake claims, because they are the ones least likely to have a tax adviser checking their tax code for errors. This, of course, includes pensioners, whose tax codes are notoriously likely to be incorrect.


James Bailey