HMRC - interest on overpaid tax?

[Spiceskull]

Okay - I need some advice/guidance from any tax experts out there. I know where I want to go, and what I want to achieve, but would appreciate some pointers as to the right path to take.

 

Some history: until ten years ago I was self employed, and like many I ran up a tax debt to the Inland Revenue - nothing serious, but the compounded nature of these things tends to creep up on you. At last count, this liability, plus interest, was in the region of £6,000.

 

Ten years ago I became an "employee" and was paying tax and NI under PAYE etc. Recent events, plus some uncovered information, have led me to believe my tax code was wrong, and that I was paying too much tax over the last ten years.

 

Contacting the relevant offices it appears that in the last five years alone I have paid close to £7000 in tax overpayments, and this amount has been agreed. It has, naturally, been offset against my previous liabilities, and I am due a small rebate...steak and chips for a few days...plus beer...and therefore the liability is cleared in its entirety.

 

My questions are these:

• Is there a limitation period with HMRC - I wish them to check the figures for the previous five years, and to find out if I have been paying too much tax for ten years rather than five.
  
• Am I entitled to interest on all the overpaid taxes, and if so, what is the correct rate to use? Is there a precedent for claiming interest on overpayments from the revenue, or are they exempt from this?

As you can guess, I am now champing at the bit, and keen to get back whatever is due to me...thanks.

[BeauBrummie]

Hi Spiceskull,

 

Not 100% certain but HMRC require you to keep records for tax purposes for 7 years, so they in turn should be able to recall the info they have on you.

When you had your overpayements sorted was any interest included in your repayments you should have had a statement that gives you the figures. I beleieve that this amount would have included interest automaticaly.

 

As I say I am not certain and perhaps other people on here will confirm this.

 

Beau

[Spiceskull]

Hiya,

 

Yes - the overpayment for the last five years has been agreed, and a cheque for the balance is on its way to me. The liability was previously agreed, so all paperwork for that has been "locked" into the calculation.

 

So, it seems that they will certainly be able to calculate a further two years, if not more, so I should be due a further refund.

 

As for the interest - there was no indication of any in the calculations. HMRC produced a statement for each year that provided tax paid/tax due/tax refundable...no other information, other than the specific details.

 

So the upshot is: I can at least claim for a further two years, but I am still uncertain of the interest to claim. Would they accept s.69, or is the bank base rate more appropriate.

 

I don't want to milk this situation, as part of it is down to me. But this did lead to a breakup with my previous partner, separation from the children, depression etc...if interest and money are due then I want to get the correct amounts

[Mr lex]

Hi Spicey,

 

I have a 'helper' who is an x-tax man, I'll run this by him. Particularly with regards to the limitation period. If they are entitled to charge you interest, I'm sure this mst be true in reverse. Do you know the rate they have charged you?? That would be the place to start !!

 

Lex

[Spiceskull]

LOL - we can discuss this tomorrow whilst shooting grouse, pheasant and partridge...and wild feral pastys if you have them on the estate...

 

Not sure of interest rates applied, but it is certainly something I will ask. I wrote to them on Wednesday, asking for a breakdown of tax paid/due/overpaid for the last ten years...when I get that info I will have a starting point...

[steven4064]

Hi spicey

 

There was a test case last year (House of Lords - Sempra Metals Limited (formerly Metallgesellschaft Limited) (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants)) where the claimant (Sempra metals) gained compound interst on overpaid (actually early paid) taxes. THe judgement is very long but there is a good summary in the Times - Compound interest is payable in restitution - Times Online

 

A sensible rate would be you bank's authorised overdarft rate.

[Spiceskull]

Hiya,

 

I remember that case - and thought the judgement flawed as the company in question voluntarily made the early payments. However, my views are neither here nor there on this matter.

 

I will be compounding the interest, as I will be using a bank charges spreadsheet from the early days - the interest compounds automatically. As for the rate - neither HMRC or myself are commercial enterprises, so I do not think a commercial rate would be valid or appropriate.

 

I am waiting to hear from them how much more has been overpaid, then I will approach them with the interest question. My guess it will either be bank base rate of about 5% or maybe s.69 at 8%. Anything more is profiteering...and I want this to be managed sensibly and correctly.

[steven4064]

There were two principles in Sempra, both upheld

 

1) that the claimant could be considered to have had to borrow the money kept by HMRC and that would have cost a certain amout based on what reasonable rate they could have borrowed at

 

2) that HMRC effectively made a profit an dthat was unjust aand had tobe taken off them. The profit was based on what reasonale rate they co8ld have lent at

[Ladidi]

Hi SpiceSkull.

 

The answer to your question are:

 

You can claim for 6 years back tax only and where interest due this will be paid.

 

In order to claim this you need to submit relevant details in question for years in which you are applying to e.g P60 What you need to do is kind of build a jig saw puzzle and submit the relevant details for the periods in question. The more details you provide the less likely they will need any other information from you unless there is anything you have missed. Any supporting documents you send in, submit a covering letter expalining you would like to relevant documents back once we have taken the details from them. Plus always take a photo copy of any documents you send in for yourself, just in case they go astray or dont make it to the intended office. I`m not saying they would go astray, but sometimes post gets lost during transport from A to B.

[Spiceskull]

Thanks for that - some sound answers. I do have a question though, and that is the six years. I guess that is because claims further back than six years are statute barred. I also gather from your response that you work for HMRC (...once we have taken the details from them...)

 

However, I have been overpaying for ten years (presumably the figures have been wrong for all this time, although that may not be the case) and the overpayments have only just come to light. Added to this is that my tax code was wrong, and this is clearly an error on the part of HMRC, albeit unintentionally.

 

There are exemptions to the limitations act, and I believe that an error on their part is one of these. After all, by "accepting" overpayments they were "confirming" that taxes paid were correct, when clearly they were not.

 

To top that, previous to ten years ago I was sort of classed as self-employed, and that was where my outstanding liabilities came from. They claimed, and have now collected, monies due back fifteen years (at the time of calculation) so it really is a case of "what is good for the goose is good for the gander"

 

This could all be academic, as I may have only been overpaying for the last five years, and there are no further overpayments to collect. The interest is another matter, and what I am trying to establish is what rate I can claim. I have read the Sempra ruling, and one thing is clear: if the overpayment has been used to "enrich" the recipient, then compunded and contractual interest is claimable.

 

With HMRC this is clearly not the case, although there would obviously be some residual earnings. The summing up runs along the lines of "why should the defendant (HMRC) pay out more than they actually earned, as this would be unfair..."

 

I'm still looking to do two things: find out if any further overpayments were made, and recover them, and then agree on a mutually acceptable rate of interest to claim on all the overpayments over the same period.

[Ladidi]

Sorry dont read too much into one words.."we" I was mearly writing as if I was with you helping you.

I/We (husband and I ) have had dealings with them in the past and present.

Best place to start is draft a letter and any supporting documents you have to support your claims, as I previously said. If you submit your details building a picture of what it is your trying to claim or explain it will make things easier with your claim. If any interest is due they will pay this the same way they would claim this from you when you paid late and owed. Any documents you provide ask them for it back once the details have been taken. My own understanding is that you can only claim for 6 years, I`m not saying you shouldn't try for earlier years, that is your own choice.

You say the errors are down to HMRC, what makes you believe this?

One thing you have to remember is this, you as a taxpayer have a responsibilty to inform of any changes in your life, whether this is personal or employment wise. It is your responsibilty as a tax payer to check your tax code and to call with any change of details or circumstances.

It is better to make the call then to leave it and have things catch up with you at a later date. When I say YOU I mean you as a tax payer, If you feel something is incorrect or should have been checked you as a tax payer have a responsibilty to call HMRC at any given time to have your tax code checked and to make sure it is upto date and also to update them with any changes in your personal details or employment etc.

If you moved house I am sure you would inform your bank manager so he can send your new bank cards to you at the right address, well it would be the same responsibilty you would have as a tax payer to call HMRC when something in your life has changed.

At the end of the day when under PAYE the employer deducts the tax from your pay not HMRC and when you are Self Employed it is responsibilty of that person to keep their records and check details when they submit their tax returns. Once they are submitted their presonal allowance is allocated along with all the other information they have submitted and this in turn gives the tax payer a tax calculation. Basically telling them what they now owe if anything.

Also what a self employed person has to remember is, they are paying their tax at the end of each year and a person employed is paying theirs each time they are paid through their employer.

At the end of the day staff in any job whether it is HMRC of Dept for work and pensions or your employer even, they rely on you submit information to them if your details have changed, or you would like them checked for peace of mind. No one has got a crystal ball where they can see what is happening so they dont have to ask you.

It costs nothing except for a few a minutes of time to make the calls. Wouldn't you be happier in the knowledge that you made a call about whatever it was than laid in wait and hoped for best, for it come back and bite you reall hard on the A**.

[steven4064]

There are exemptions to the limitations act, and I believe that an error on their part is one of these.

Section 32 of the Limitations Act 1980:

Postponement of limitation period in case of fraud, concealment or

mistake

(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either--

(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

© the action is for relief from the consequences of a mistake;

 

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

[Spiceskull]

Section 32 of the Limitations Act 1980:

Sorry - I don't want to sound like a pedantic knob, but I know the relevant bits that I need...check my posts and I have used them on many occasions...

[steven4064]

I did wonder - I misinterpreted ar of your post as a question (Note to self - read all of posts before posting yourself ), Anyway it might be useful info for someone else reading this thread

[Spiceskull]

My own understanding is that you can only claim for 6 years, I`m not saying you shouldn't try for earlier years, that is your own choice

I'm not nitpicking here, just popping extra details for anyone else who may follow on after me.

 

The "general" rule is six years PREVIOUS to the current tax year, so in most instances this will be claiming back up to seven years (Direct Gov):

The tax office will look into your query, work out how much they owe you and send you a refund in the post or by bank transfer. You can claim back overpaid taxes for up to a maximum of six years previous to the current tax year.

I still also believe that the limitations exemptions apply, and will be pursuing that as and when necessary. However, the same DirectGov advice indicates that HMRC would normally be well-intentioned towards any appeal.

 

Regarding the responsibility for ensuring tax codes are correct: DirectGov also seems to imply that this is a three way thing, with your own responsibility making up one third part of the whole. HMRC provides the code to your employer, and therefore if this is not properly notified to you, then you cannot reasonably be expected to know that it is incorrect, and nor would you have reason to suspect as much.

 

I will keep people posted as this develops...anyone have any indications as to interest rates yet?

[steven4064]

If you are going for comound interest using Sempra I would suggest you use your banks unauthorised borrowing rate, whatever that is, on the basis that you would have had to borrow the money and there is no indication that your bank would necessarily have extended your overdraft limit to accommodate it. If you think your bank would have looked on the whole thing more kindly, then use their authorised rate.

[Spiceskull]

If you are going for comound interest using Sempra I would suggest you use your banks unauthorised borrowing rate, whatever that is, on the basis that you would have had to borrow the money and there is no indication that your bank would necessarily have extended your overdraft limit to accommodate it. If you think your bank would have looked on the whole thing more kindly, then use their authorised rate.

LOL - two points to be raised here, and the first is the interest proper.

 

I would need to demonstrate at what time (and therefore at what rate, authorised or otherwise) I would have needed to borrow that money. For HSBC (although I'm not with them now) the rates have varied over the years, and therefore if I wanted to "borrow" the money two years ago, the interest rate would have been at least 0.5% higher than if I had borrowed eight years ago.

 

The other point is included in the summing up of Sempra - namely that the defendant is not "commercially benefiting" from the period of prematurity. HMRC could reasonably expect to earn 1-2% ordinarily, but they certainly would not be earning commercial rates.

 

I will be composing a letter to them this week, requesting data/estimates for years 5-10, and requesting interest (calculated daily) of 5%. If they are accepting of this then all well and good, if not then I will go for s.69 at 8%.

 

As for the "days since the offence" only HMRC can know the exact dates, so I will give them some leeway. As PAYE is paid weekly/monthy, and therefore the tax is paid weekly/monthly it would be hard for me to make an exact calculation. However, ALL tax is aggregated by 4th April, and I would therefore use this as the settlement date for each year.

 

"Days since" can be calculated for each year's "total" overpayment, and calculated daily from that point forth. This gives HMRC any benefit in terms of the "calculated in favour of X" argument, and they would not be able to call me unreasonable in this...

[steven4064]

Sounds inordinately reasonable to me

[Spiceskull]

LOL - this is scary. Calculating simple interest at 5% (roughly bank base rate) the overpayment plus interest total comes in at about £10K.

 

Using unauthorised bank rate, plus compounded, the total comes in at about £200K...yes, two hundred grand...

 

I checked my calculations...they are correct (based on the rough figures) - what scares me is that banks have been doing this to us for years...

[Bookworm]

£200k? Pub dinner DEFINITELY on you then! (But no flowers this time, thanks. )

[Conniff]

Just as important (if not more) spiceskull is the NI. If you have missed ten years of NI, you pension will be affected, so you should give them a bell and ask them to send you an update on missing payments. They will also tell you how much you need to catch up to qualify for a full pension.

[Spiceskull]

Just as important (if not more) spiceskull is the NI. If you have missed ten years of NI, you pension will be affected, so you should give them a bell and ask them to send you an update on missing payments. They will also tell you how much you need to catch up to qualify for a full pension.

LOL - the last ten years have been OVERPAYMENTS, and it follows that I may be due a rebate from NI as well...

[Spiceskull]

Formal request for all overpayment data, plus acceptable interest rates made today.

[Bookworm]

Spicey, my little cinnamon cake, have you paid attention to this? I was meaning to bring it to your attention, and no, it isn't just one of my disjointed ramblings or musings:

EU court says up to UK authority to rule on tax treatment of M&S teacakes - Forbes.com

 

Interesting, because:

As a result, customs and excise, on their own initiative, accepted that the claim should not be time barred

and here:

 

Marks & Spencer tax rebate is a piece of cake - Telegraph

 

Food for thought, if you'll forgive the bun. Sorry, the pun.

[Spiceskull]

Interesting reading - ta for that. Effectively under the equal treatment rule, if an error can be proven then there is no limitation period...but then again, surely the exemptions from SLA allow for remedy from the result of an error...

 

However, the "on their own initiative" does sound nice, and demonstrates that HMRC at least accept that the exemptions should be applied where relevant...

 

Just waitning for them to get back to me now...