Weekly Tax Update - Monday 11 February 2013

1. GENERAL NEWS

   1.1 Finance Bill 2013

   Finance Bill 2013 will be published on Thursday 28 March.

   1.2 Making a claim for repayment of tax

   There are two legal routes for claiming repayments of tax:

   Statutory claims. These can be made within the period for amending an income or corporation tax return (two years from the end of an accounting period for a company and by 31 January following the filing date for a personal tax return). Where the claim relates to a mistake, the period for making a claim extends to four years (from the end of the accounting period for companies and the end of the relevant tax year for individuals). A successful claim for repayment will result in the repayment of the overpaid tax plus (if applicable) interest calculated at simple interest rates. Appeals on statutory claims are dealt with through the Tribunal system which has particular rules on when costs can be claimed. Common law claims. These can be made within six years from the date on which the mistake leading to the overpayment could, with reasonable diligence, have been discovered. There is an alternative deadline of six years from the date of payment of the tax. A common law claim will be for restitution, damages and compound interest. It may be very difficult to justify a claim for damages in relation to overpaid tax, as has been demonstrated in the Franked Investment Income (FII) group litigation order (GLO). However a payment of compound interest can exceed the repayment of tax several times if the time period involved is sufficiently large. It may be possible to claim more costs under a common law claim than under a statutory claim. It may also be possible to obtain an interim repayment under a common law claim which may not be possible under a statutory claim. Where returns have been made on the basis of the practice generally prevailing, a statutory claim for repayment could be rejected for direct tax. Whether any provision in UK tax law can be read as complying with EU law may depend on whether a 'conforming interpretation' can be read into the legislation. The Supreme Court in the FII GLO case (May 2012 UKSC 19) clarified that the 'conforming interpretation' cannot be applied to re-interpret a cardinal feature of the legislation (which the prevailing practice provision in TMA s33 was deemed to be).

   The consequences for the claimants in the FII GLO were that an outstanding claim under a statutory route did not comply with EU law as it does not provide an effective remedy, and could therefore be invalid.

   There are currently a number of areas where UK law is seen as not compliant with EU law. Amendments to some of these areas are proposed for Finance Bill 2013. The areas include:

   Transfer of assets abroad (ITA part 13 chapter 2). Attribution of gains (TCGA s13). Group relief (CTA10 s107). Tax charges on migration (TCGA s185 & 187, also TCGA s80, 83, 168 and balancing allowances on capital allowances on a trade being taken outside the UK tax net). If claims for repayment of taxes already paid are being considered, appropriate thought will need to be given to the time limits for making a claim, and whether the claim should be made using a statutory or common law process or both. The decision as to what sort of claim is appropriate can be...