HMRC is blocking valid tax repayments by imposing a four-year rule which the Upper Tribunal says does not apply.

Unlike HMRC (a corporate body) individual taxpayers are human. They suffer illnesses; mental and physical, and life-disrupting events which can cause them to miss tax return filing deadlines, sometimes by some years.

Most tax claim and assessment deadlines were revised down from six years to four years from the end of the relevant tax year, with effect from 6 April 2010. This change in the law may have caught out a large number of taxpayers, and perhaps their advisers, who were brought up on the old six year rule.

Where a tax return has not been filed as expected, and HMRC believes tax is due, it will issue a ‘determination’ of an estimated amount of tax, which can only be removed by the taxpayer submitting a self assessment return. Penalties and interest will also be charged on the estimated tax liability. A sad example of the mess a taxpayer can land in was recently set out on the ICAEW Tax Forum.

In that case the taxpayer overpaid tax as he continued to make payments on account in the years in which he was too ill to complete a tax return. Once he got his life in order he submitted the outstanding tax returns, but HMRC refused to process the returns for the earlier years as they fall outside of the four year assessment period.

This is wrong, as it was decided in R (oao Higgs) v HMRC [2015] UKUT 92(TCC), that the taxpayer should receive the repayment of overpaid tax in such situations. However, in spite of the Upper Tribunal ruling that the four-year assessment deadline only applies to HMRC’s assessments, and not to self assessments made by the taxpayer, HMRC is still refusing to process tax returns which are outside of four year limit.

Well known tax barrister Keith Gordon is encouraging tax advisers to resubmit clients’ tax returns which have been rejected by HMRC because of the four-year (and previous six-year) rule, as the Higgs case proves that the claims for repayment of overpaid tax should be accepted by HMRC. Keith is also warning that the law (TMA 1970 s, 34) may be changed with immediate effect at the Budget on 8 July 2015, so don’t delay - get those old claims in now!

Rebecca Cave is the author of Bloomsbury’s Tax Rates and Tables 2015/16 (Pre-Election edition).