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April 29, 2015

Tax Refund Not Subject to 4 Year Time Limit - Higgs v HMRC

In Andrew Michael Higgs v HMRC, the Upper Tax Tribunal held that the taxpayer was entitled to a full refund of overpaid tax, even though the claim went back more than four years, which is the general time limit for claims.

The Facts

-          Mr Higgs made payments on account in respect of the tax year 2006/2007 of £46,317. However the actual tax liability for that year was £18,830.

-          In March 2008, his accountant prepared his self-assessment return for the 2006/07 tax year, making a claim for a refund for overpaid tax of £27,000.

-          Mr Higgs reviewed the return but forgot to file it, eventually submitting it in November 2011.

-          As over four years had passed, HMRC refused to process the form or pay the refund.

The Case

HMRC argued that s. 34(1) of the Taxes Management Act 1970 clearly states that no assessment to tax may be made later than four years after the end of the tax year in question. This applies to self-assessments as well as its own assessments.

On this basis, the return was received outside the limit to be processed and the payments on account made in relation to that year was conclusive.

Mr Higgs disagreed with this interpretation, and submitted that the statute only applied to HMRC’s assessments.

As a further point, he argued that even If the statute only applied to self-assessments, HMRC had discretion to extend the deadline. Due to the amount of money at stake, HMRC were obliged to exercise discretion as in the absence of an extension he would suffer disproportionate damage.

The Decision

It was held that the reference to “an assessment” in the legislation applied to assessments made by HMRC only.

Therefore, Mr Higgs had the right to file his self-assessment return after the end of the year concerned, and was fully entitled to a rebate of the overpaid tax, even though the return was submitted after the four-year period.

The ruling is unlikely to apply to all cases where a refund is sought outside the 4 year time limit, but does demonstrate the importance of thoroughly testing assertions made by HMRC.

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