If you don’t file your tax returns HMRC will assess the amount of tax due but it will probably not be the correct amount. So what can you do to correct the tax payable?
A person can claim overpayment relief to recover overpaid income tax, CGT, Class 4 NIC or corporation tax or to reduce an excessive assessment. A person can claim overpayment relief to recover overpaid bank payroll tax or to reduce an excessive assessment.
This includes amounts paid under a contract settlement.
This is an important ‘relief of last resort’ for taxpayers who have missed all other deadlines and face a tax bill from HMRC, where there is no statutory right to amend the actual legal liability because the relevant time limits have passed.
Special relief is intended as a final and exceptional remedy where it would be unconscionable for HMRC to pursue tax that is legally due. HMRC has a duty to both Parliament and taxpayers generally to collect the tax due under relevant tax law and to ensure the tax system is operated fairly. This means that HMRC cannot simply disregard the time limits for making a self-assessment if it appears that a determination might be excessive. There must be further circumstances which make it unconscionable to recover the full amount due under the determination or not to repay an amount already paid.
Such circumstances might be where a person
- is suffering from a temporary or sporadic illness, including mental illness, and consequently finds it particularly difficult to engage with the tax system
- has not received our notices or other communications for reasons outside their control
- is insolvent. Where the debt is based on determined sums, and the late submitted evidence (or returns) prove that a different amount would have been due if returns had been made in time, we would consider using this relief. Relief would be considered where doing so is fair to other creditors – so the unconscionable element would be that pursuing the amount in the determination would be to the detriment of other creditors.
For a claim to special relief to be successful, it must, among other things, explain why the person considers that it would be unconscionable for HMRC to recover the full amount charged by a determination. Unconscionable means “completely unreasonable” or “unreasonably excessive”. SACM12240
HMRC may in their discretion mitigate any penalty, or stay or compound any proceedings for recovery thereof, and may also, after judgment, further mitigate or entirely remit the penalty. TMA70/S102.
Mitigation will be considered in three circumstances.
- Where some sort of HMRC maladministration, usually delay, has caused or contributed to the size of the penalty – where delay and/or lack of co-operation by the taxpayer have caused the department additional costs that will weigh against mitigation.
- Where to enforce payment of the penalty would cause the taxpayer genuine and absolute hardship.
- Other exceptional circumstances such as the penalty or penalties being wholly disproportionate to the offence – for example a large tax-geared failure penalty under S93(5) following upon very large S93(3) daily penalties for the same offence, or belated information revealing the type of situation set out at EM5212 (“In-built” penalty).
There is no appeal against HMRC’s decision on S102 mitigation and a taxpayer wishing to litigate would need to seek Judicial Review.