Overpayment relief for companies
26th April 2023
Posted in Articles by Andrew Marr
The issue
When we take on new corporate clients, it is not unusual for us to identify various errors in previously submitted tax returns which have led to tax being overpaid. For example, we recently identified some legal fees which, we felt, had been incorrectly added back in the tax computations (relating to defending the company’s good name). When this happens, we need to think about how to correct the mistake and recover any overpayment.
If the issue in question related to the accounting period ended 30 April 2021, then the approach would be straightforward. Because we would still be within a year of the company’s tax return submission deadline of 30 April 2022, then we could simply amend the corporation tax return and this would trigger a refund. But what happens if we identify an error in the return for the accounting period ended 30 April 2020? That is where overpayment relief can potentially come to the rescue…..
Overpayment relief
Overpayment relief can potentially be claimed within four years of the end of the accounting period in question (although HMRC can exercise discretionary powers to extend this). Therefore, if we were to spot an error in the return for the year ended 30 April 2019, we would be in time to make a claim (but would need to be quick!).
Any claim needs to be in the form of a letter to HMRC which clearly sets out the issue and the tax at stake. It should also be signed by a director. Therefore, if we wanted to reverse an add-back of expenditure, then we would need to explain why we think that the expenditure should have been allowed and how much tax we want back as a consequence.
This relief is not always applicable because there are various exclusions which need to be considered. Generally, these work to bar relief if you missed an earlier opportunity to make things right. There are also restrictions for claims, including capital allowances. The exclusions are as follows:
1. If the calculation was in accordance with the practice generally prevailing at the time.
2. If the mistake was in an election, claim or notice.
3. A mistake in the allocation of expenditure to a pool for capital allowances purposes or the bringing in of a disposal value for such purposes.
4. The tax was due as a result of proceedings by HMRC against the claimant or under an agreement in settlement of any such proceedings.
5. The claim is made on grounds that have been already put to a court or tribunal in the course of an appeal.
6. The claimant knew (or should have known) of the grounds for the claim before the latest of the date an appeal relating to the tax charged was determined by a court or tribunal, the date on which such an appeal was withdrawn by the claimant, and the date by which such an appeal could have been made.
Forbes Dawson view
This relief can offer a fairly straightforward mechanism to reclaim tax in appropriate cases. Also, it is worth asking HMRC to exercise its discretion for older periods, although anecdotal evidence suggests that they are generally reluctant to do this. Although this Tax Bite has focussed on the situation for companies, similar principles apply to personal tax too. A review of a new client’s old tax returns can often therefore set the relationship off positively!
