Alert over tax rebate claims

Jun 13 2008 by Barry Ellams, Chester Chronicle

HM Revenue & Custom’s (HMRC) cut in the time limit on claims for rebates of overpaid tax, could leave taxpayers unable to reclaim huge amounts of tax they would otherwise be entitled to, warns UHY Hacker Young, the Chester accountancy firm.

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 five.

HMRC, however, will often still be able to recover underpaid tax for longer than the four-year limit.

Forty-four per cent of claims are for tax refunds which go back six years with the average claim being £1,963 for the six-year period.

According to UHY Hacker Young, 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.

UHY Hacker Young also points 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.

John Ierston, Partner at UHY Hacker Young, said: “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.”