Missing the 31 January deadline could lead to lost tax refunds

Taxpayers often make mistakes in the preparation of their tax returns, some of which may result in them paying too much tax. This is often due to simple errors like entering the wrong figures, failing to include expenses correctly or missing out certain reliefs. The problem is these errors often only come to light when preparing the following year’s tax return and looking over last year’s effort.

Ordinarily, such errors can be amended if discovered within 12 months of the filing date (31 January). However, with the difficulties caused by the pandemic, and with over two million taxpayers not submitting their tax returns by the normal deadline, a significant number of taxpayers may find they’ve run out of time to correct mistakes and amend last year’s return. Fortunately, all is not lost, as it may be possible for taxpayers to make a special claim for ‘overpayment relief’ to reclaim any overpaid tax.

So, what is an ‘overpayment relief’ claim? As the deadline to amend tax returns for 2019/20 has already passed, taxpayers must write to HMRC claiming for the overpayment they believe they are due, along with evidence to support the claim. Taxpayers have up to four years from the end of the relevant tax year to make the claim for repayment.

The good news is that this is a much longer window of opportunity to not only spot any mistakes, but also correct them. It is also possible for HMRC to allow tax reclaims for earlier years, beyond the normal four year period, if the taxpayer can demonstrate that the late claim was due to circumstances beyond their control.

However, there is a sting in the tail, as taxpayers must meet certain conditions to be issued with a repayment.

One of the main reasons HMRC might deny a tax repayment is if the taxpayer has failed to claim a tax relief. If HMRC considers that the taxpayer ought to have known about the tax reliefs available, the claim for repayment will likely be struck out. HMRC has recently won a case (Smith Homes 9 Ltd v HMRC) which highlighted this issue – a taxpayer was denied Stamp Duty Land Tax relief, in part because they should have known the relief was available at the time of preparing the return.

Frustratingly for taxpayers, it was also noted in the case that HMRC was ‘under no obligation’ to inform taxpayers about the tax reliefs available. Some taxpayers who have failed to correct mistakes by amending their 2019/20 tax returns could therefore find themselves out of pocket, despite any difficulties caused by the pandemic. The case highlights the increased pressure on taxpayers to ensure they are up to speed with the myriad of complex tax reliefs available. Some might reasonably question whether this balance of responsibility is fair, given the falling service levels at HMRC. This is further compounded by HMRC temporarily closing down some specialist phone lines on certain days, making it now harder than ever for taxpayers to get the advice they need.