SAM114040 - Repayments: claims made outside a return: claims: error or mistake - replaced by ‘overpayment relief’ from 1 April 2010

You must only use the guidance on this page if the claim to error or mistake relief was made before 1 April 2010. For claims made on or after that date, error or mistake relief was replaced with ‘Overpayment Relief’ and you must follow the guidance at SAM114045 and SAM114046.

This subject is presented as follows

Claims under S42(9) TMA 1970
Claims under S33 TMA 1970

• Requests to revisit processed claims
• Interest, penalties and surcharges
• Relief given by set-off / repayment
• Class 4 NIC refunds
• Transitional rules (from 1 April 2010, mistakes in certain 2004-05 or 2005-06 returns)

Claims under S42(9) TMA 1970

S42(9) TMA 1970 only applies to errors or mistakes made in a 'claim'. Where a claim has already been made either on a return or stand alone, a taxpayer may make a supplementary claim under S42(9) TMA 1970 where an error or mistake has been made on the original claim.

A supplementary claim relating to 'error or mistake relief' should only be accepted providing that the time limit for making the 'original claim' has not expired. A supplementary claim of this sort should be dealt with as if it were an original claim and relief given by set-off or repayment.

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Claims under S33 TMA 1970

S33 TMA 1970 only applies to errors or mistakes made on an SA return, for example where something was originally omitted from the return. It does not apply to errors or mistakes in a claim that is included within an SA return. For errors or mistakes within a claim, S42(9) TMA 1970 applies.

Where a taxpayer discovers that they have made an error or mistake on their self assessment return and as a result, the assessment is excessive, they have the right to amend the return within 12 months of the filing date. Where this time limit has lapsed, they are still entitled to make a claim to ‘error or mistake’ relief under S33 TMA 1970 within 5 years of the filing date for the year concerned.

The general conditions for such claims are unaltered under SA (see SACM12000 onwards). The 'Process Now, Check Later' regime does not apply to these type of claims, which may require further enquiries. These claims should be approved by an officer of band C2 or above before relief is given.

The error or mistake relief legislation is extended to partnership statements by S33A TMA 1970. Such a claim must be made by the nominated partner, see subject ‘Maintain Taxpayer Record: Nominated Partner’ (SAM101290) and must be made within 5 years of the annual filing date for the return. Where a partnership statement is amended to give effect to such a claim, consequential amendments to the individual statements of each affected partner will be made by HMRC.

S33 TMA states that the relief due should be given by way of repayment. In practice we may also give relief by way of set off where the tax has not already been paid. The legislation does not permit a self assessment to be amended following the expiry of the date by which an SA return can be amended. But legislation does allow for any interest, penalty or surcharge for the year of claim to be mitigated to the amount that would have been due had it been possible to amend the return.

Since the self assessment is not amended

• A claim to the relief has no effect upon the payments on account for the following year, which remain in the amounts set up before the claim was made
• The return figures for the year should not be changed
• The relief due as a result of the claim should be calculated clerically
• Clerical action may be required to amend any interest, penalty or surcharge for the year of claim

Where liability for any year is outstanding (or will become due within 45 days) relief should be given by set-off.

Where there are no outstanding liabilities (or any becoming due in 45 days), relief should be given by repayment.

Note: Where no liabilities are outstanding but there is an amount becoming due within 45 days and the taxpayer insists on repayment as opposed to set off, the repayment can be made on condition that it is repaid before the due date of the future liability.

(See Self Assessment Claims Manual SACMApp1.)

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Requests to revisit processed claims

Any request submitted by a taxpayer or agent to revisit a claim that was processed on or after 6 April 1996 in order to amend any interest, penalty or surcharge for the return year should be accepted.

The request should be in writing and submitted to the office responsible for the processing activities. On receipt of a request, it should be acknowledged and forwarded on to the IRU (Interest Review Unit) at Cumbernauld with the full facts of the case under cover of the 'Interest Submission Form' stencil. An entry should be made in function MAINTAIN SA NOTES detailing the date of receipt of the request and that it has been sent onto the IRU.

The IRU will review the claim and where appropriate agree the mitigation of any relevant charges. At this stage the IRU will contact the office responsible for the processing activities to request transfer of the taxpayer's record to them.

The IRU will deal with the remission of any interest and surcharges (only where part mitigation of a surcharge is required) and will return the case to the responsible office with instructions to cancel any penalty or surcharge as appropriate.

Any request for repayment that accompanied the request to revisit the claim, should be dealt with by the office responsible for the processing activities when the case papers, together with any instructions and SA record are returned.

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Interest, penalties and surcharges

When processing the claim any interest, penalty or surcharge for the year of claim should be mitigated to the amount that would have been due had it been possible to amend the return. These charges should be amended as follows

Interest and surcharges

Where an interest or surcharge is to be reduced in full or in part

• Transfer to OAS payments made against the original charge up to the value of the relief due
• Create a freestanding credit (or credits) for the amount of the relief due and give it (them) the EDP of the relevant due date of the charge(s) for the year of claim

For example

1.	The freestanding credit created for the relief should be given an EDP of the balancing charge debit (BCD) of the year of claim
2.	Where the relief due exceeds the BCD amount, the excess should be divided into two equal amounts and two freestanding credits created with EDP equal to the payments on account (POA)
3.	Where only POA exist for the year of claim, the relief should be divided into two equal amounts and two freestanding credits created with EDP equal to the POA
4.	Where the relief also exceeds the total tax paid (BCD and / or POA) for the year of claim, this excess should be treated as a balancing charge credit (BCC) and a freestanding credit created for this amount, with an EDP of the fixed filing date of the year of claim

These actions will automatically update both the interest and surcharge (interest immediately, surcharge overnight), then

• Reallocate back to the record the payments transferred to OAS

Where amendment to the surcharge results in reduction to an amount below the £50 imposition limit, the surcharge will remain on record in the reduced amount.

Penalties

• Where the whole of the penalty is to be reduced to nil
• Use SA function AMEND FIXED PENALTIES

Where the penalty is to be capped

• Ask the office responsible for the recovery activities to remit the relevant amount under Class 10 (miscellaneous)

Where an overpayment of a penalty or surcharge has been created by these actions, RPS will be payable on the overpayment from the original date of payment. This RPS will have to be calculated manually and a further freestanding credit created on the record. RPS is not payable on any overpayment resulting from the amendment of an interest charge.

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Relief given by set-off / repayment

Whether relief is to be given by set-off or repayment SA function CREATE FREESTANDING CREDIT will be used to enter a credit on the SA record.

Following the use of this function

• A credit will be created on the SA record which will be available for repayment or allocation against an SA charge
• A work item will be created and entered on the ‘Freestanding Credit Review’ work list
• The No Repayment signal will be set automatically. (The setting of this signal will prevent an automatic repayment and possible over-repayment being made when the return is received)
• You will be taken to function VIEW STATEMENT from which you may want to access function ISSUE REPAYMENT FROM OVERPAID BALANCE. If repayment is not appropriate, you should exit that function
• You should use SA function MAINTAIN SA NOTES to enter a brief note recording the fact that a repayment / set-off has been made

Where the amount of the freestanding credit is more than sufficient to cover the balancing charge debit and payments on account for the year of claim and the excess of the FSC is to be set against a charge for an earlier SA year, the following action should be taken

• Informally standover the charge for the earlier year
• Make an appropriate entry using function MAINTAIN SA NOTES giving the reason for the informal standover
• Create the freestanding credit (the FSC will then be automatically allocated against the outstanding charges for the year of claim)
• Release the informal standover on the charge for the earlier year (the unallocated balance of the FSC will automatically allocate against the charge for the earlier year)

More detailed advice on creating a freestanding credit is provided in subject ‘Freestanding Credits’ (SAM110080).

More detailed advice on EDP and dates from which RPS is payable is provided in the section 'Issue Repayment', in subject 'Effective Dates of Payment' (SAM110070).

Repayment supplement (RPS)

When relief is given either by set-off or repayment, it should include RPS (if appropriate).

RPS will be payable from

• The date(s) the tax was paid for the year of claim which is now being set-off or repaid (except where the original tax has been collected through the code)

• For the amount of relief that exceeds the total tax paid for the year of claim, the fixed filing date of the year of claim

To

• The relevant due date of the charge against which the set off is made, if to the same UTR

• The date the set off is made, if to a different UTR or Head of Duty

• To the projected date of issue of the repayment, if repaid

Note: Where a set off is made to a charge for an earlier year under the same UTR, RPS will not be payable. This is because had it been possible to amend the original return to give effect to the claim, this earlier year liability would have been automatically cleared by the freestanding credit created for the relief and no overpayment would have arisen.

Any RPS that is due will need to be calculated manually and included in the total amount of the credit entered on the SA record, using function CREATE FREESTANDING CREDIT.

IRIS function SARI (Self Assessment Repayment Interest) will enable you to calculate RPS. More detailed advice about how to use function SARI is provided in the IRIS User Guide.

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Class 4 NIC refunds

Where both Class 1 and Class 4 NIC is payable, an SA taxpayer may make a claim to the National Insurance Contributions and Employer Office (NIC&EO) for deferment of Class 4 NIC. In all cases where deferment is granted, NIC&EO will send the taxpayer a deferment certificate and the taxpayer should ensure that this deferment is noted on their SA return.

Prior to 2003-2004, if deferment was granted, the taxpayer did not pay any Class 4 NIC through their SA return.

From 2003-2004 if deferment is granted, the taxpayer pays 1 per cent Class 4 NIC on chargeable profits (above the lower profits limit) through their SA return.

If NIC&EO previously identified a refund of Class 4 NIC because the taxpayer had failed to note deferment on their return, they would calculate and issue the refund but in some cases, this resulted in a duplicate refund being issued by the processing office. This happened because a subsequent claim to relief under 'Error or Mistake’ was made later in respect of the Class 4 NIC overpaid. So in order to avoid this risk, where a deferment is now omitted from an SA return and the time limit for amending the return has passed, the processing office will refund the Class 4 NIC overpaid through the taxpayer's SA record.

Notes:

1.	A claim to relief in respect of Class 4 NIC overpaid, cannot be made to the processing office until the Class 4 NIC liability for the year has been finalised and paid in full.
2.	NIC&EO will continue to deal with any claims to refund of Class 4 NIC overpaid which fall outside the limit for a claim under S33 'Error or Mistake'.

Relief given by set/off repayment

Where a claim for relief in respect of Class 4 NIC overpaid is received, the function CREATE FREESTANDING CREDIT should be used to create a credit on the taxpayer's SA record, which should also include any repayment supplement due.

Where appropriate, any unallocated amount of this freestanding credit should be first used to clear any unpaid Class 2 contributions (and exceptionally any Class 4 NIC contributions for earlier years) before any balance is repaid if requested. Both the stencil issued from NIC&EO held with the SA return and SA NOTES, will detail any outstanding NICs.

Repayment supplement (RPS)

Repayment supplement is payable on refunds of Class 4 NIC from the date the 'original' Class 4 contributions were paid through the taxpayer's SA record.

Any Class 4 NIC paid as part of the SA liability forms all or part of any balancing charge debit and in some cases part of the payments on account. Liabilities in respect of Capital Gains Tax and Student Loan Repayments are not subject to Class 4 NIC.

In order to establish which payments on the SA record for the relevant tax year relate to Class 4 NIC, on a last in first out basis, payments up to the total value of any CGT and SLR must first be disregarded.

Then on a last in first out basis, the remaining repayments should be attributed first to any balancing charge debit up to the value of the Class 4 NIC overpaid. If the Class 4 NIC overpaid exceeds the amount of the balancing charge debit, then the excess amount should be attributed equally to the payments made against the two payments on account, again on a last in first out basis.

For example

2001-2002 claim to relief for CL4 NIC overpaid of £800

Total SA liability £8000

Includes CGT and Student Loan Repayments totalling £1500

POA 1 £3000

POA 2 £3000

BCD

£1500 of the payment made against the BCD should be disregarded because this is attributable to payment of the liabilities due on CGT and SLR.

The £500 balance of the payment made against the BCD, £150 of the £1500 payment made on 31/09/02 against POA2 and £150 of the £1500 payment made on 31/03/02 against POA1 can be attributed to the amount of £800 of Class 4 NIC claimed as overpaid.

In this example RPS is payable on the amounts of Class 4 NIC overpaid from the 'original' dates of payment as below

Any RPS payable should be included in the amount of the freestanding credit created to give credit for the Class 4 NIC overpaid.

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Transitional rules (from 1 April 2010, mistakes in certain 2004-05 or 2005-06 returns)

From 1 April 2010, ‘overpayment relief’ replaces ‘error or mistake relief’ for individuals, partnerships and companies and from this date it is no longer possible to make a claim under ‘error or mistake’ for any period. Any claims that would have previously been submitted under ‘error or mistake’ for a period prior to 1 April 2010, must now be made as a claim for ‘overpayment relief’ within the relevant time limit.

The normal time limit for an ‘overpayment relief’ claim is 4 years from the end of the tax year to which the return relates, as opposed to 5 years 10 months as previously under ‘error or mistake’.

This means that in most cases it will not be possible to make a claim for the 2004-05 or 2005-06 tax years as these were out of time on 1 April 2010, but exceptions to this are where

• The claim is in respect of a mistake in an SA return for 2004-05 or 2005-06

• The person was given a notice to make that return more than 12 months after the end of the tax year

In these cases, the time limit reverts back to 5 years and 10 months from the end of the tax year to which the return relates.

In these exceptional circumstances

• An overpayment relief claim relating to a mistake in a 2004-05 return has to be made before 31 January 2011
• An overpayment relief claim relating to a mistake in a 2005-06 return has to be made before 31 January 2012

(See Self Assessment Claims Manual SACM12180.)