The Government is working towards quietly reducing the amount of time which people have to reclaim overpaid tax, the latest in a series of measures to bolster the Treasury's tax haul.
The new rules – which will see the time limit on overpaid tax claims reduced from five to four years – were not publicly announced, but were included in the small print of this year's Finance Bill, the legislation which enacts all the measures in the annual Budget.
According to the charity Tax Help for Older People, some 44 per cent of tax refund claims go back at least six years, with the average claim coming in at almost £2,000 for the six-year period. Already thousands of people find themselves timed out by the five-year rule, and thousands more will be closed out once the limit has been reduced.
The rules will come into force once the Finance Bill, which is passing through Parliament, becomes law later this year.
The accountancy firm UHY Hacker Young said the reduction in the time limit would be particularly disadvantageous to pensioners, of which an estimated 200,000 are thought to have paid too much tax on the income from their annuities last year.
"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," said Rob Durrant-Walker, a tax manager at UHY Hacker Young. "The changes are weighted in HM Revenue & Custom'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. It's one rule for HMRC and one rule for the taxpayer."
An HMRC spokesman said: "Four years is sufficient time for customers to make a claim in normal circumstances. However, to ensure taxpayers do not lose out, we will continue to accept claims for refunds after this time limit in certain circumstances. These include where an error or mistake on our part has led to the claim being made outside the time allowed; where a taxpayer has given clear notice of his or her intention to claim before the time limit expires; or where the reason for the delay in making the claim was clearly beyond the customer's control."
The reduction in the time-limit for claiming back overpaid tax is the latest in a string of changes which have hit taxpayers over the past few years.
Another measure included in the Finance Bill will give HMRC the power to fine taxpayers more heavily for filing their tax returns incorrectly. "At the moment, in cases where the omission is not malicious, the penalty can often be reduced to nil," said Mr Durrant-Walker. "But...as of next year, there will be much less discretion for inspectors to reduce penalties."
In April, the Government also scrapped taper-relief, which helped consumers to minimise their capital gains tax bills on assets held for the long-term. Although the headline rate of CGT was reduced from 40 to 18 per cent, many consumers saw their CGT bills almost double as a result of the removal of taper relief. Measures were also introduced to tax non-domiciled residents £30,000 a year.
Mr Durrant-Walker said that only the rich and well-advised were now able to make any savings by clever tax planning.Reuse content