In certain instances where HMRC have issued determinations for Income Tax assessments, a type of overpayment relief (“Special Relief”) is potentially available under paragraph 3A Schedule 1AB Taxes Management Act 1970 (“TMA 1970”). Special Relief may be available where there is no other statutory remedy available to the taxpayer, i.e. the taxpayer is time barred from making a normal claim for overpaid tax. There is a parallel relief for the overpayment of Corporation Tax (Para 51BA Schedule 18 FA 1998).
The First Tier Tribunal (“FTT”) case of William Maxwell v The Commissioners for Her Majesty’s Revenue & Customs  (UKFTT 459 (TC), decided on 7 August 2013) concerned a claim for Special Relief following the ill health and death of a taxpayer’s accountant.
Mr Maxwell had received income tax determinations for the tax years 2006/07 and 2007/08 and, despite a number of reassurances from his previous accountant that there was nothing to worry about, his self-assessment tax returns to displace the determinations were filed out of time. This only came to light following the unfortunate death of the accountant who had been ill for some time.
The taxpayer’s new accountant submitted a claim for Special Relief on the grounds that:
- His previous accountant had assured Mr Maxwell that the outstanding tax returns were being dealt with;
- The previous accountant was ill and subsequently passed away. Mr Maxwell had no knowledge of the previous accountant’s ill health;
- The determinations were excessive in terms of the tax outstanding;
- He was entitled to an equitable assessment;
- As a pensioner he was not financially in a position to allow the determinations to stay; and
- Other clients of his previous accountant have had their penalties lifted in similar circumstances.
HMRC contended that the Special Relief was not available as the taxpayer was fully aware of the fact that his tax affairs were not up to date because he received a number of penalty notices, determinations and distraint warning letters (all of which were passed on to his previous accountant).
The FTT rejected HMRC’s arguments and held that it would be “unconscionable” for HMRC not to allow Special Relief. The FTT went on further to explain that in assessing the behaviour of the taxpayer in this case, HMRC needed to look at whether a reasonable person in similar circumstances would have acted in the same way. The FTT found that Mr Maxwell had acted appropriately with regards to his tax affairs, as he appointed an agent whom he believed was managing his tax obligations accordingly and Mr Maxwell was not aware of his accountant’s ill health. Thus the FTT was satisfied that the conditions for Special Relief had been met and allowed Mr Maxwell’s appeal.
It is important to bear in mind that Special Relief may be available in certain circumstances, especially where HMRC contends no other relief is available.
Special Relief is available provided the following conditions are met:
- the taxpayer is time barred from displacing the tax determination(s);
- the taxpayer is unable to make a claim for Overpayment Relief;
- it would, in the opinion of the Commissioners, be unconscionable for ‘HMRC to seek to recover the amount which has been charged by a determination, or refuse to repay it if it has already been paid’;
- the commissioners are satisfied that the taxpayer’s tax affairs are otherwise up to date or arrangements have been made to the to bring them up to date; and
- the taxpayer has not previously claimed Special Relief or sought equitable liability (the predecessor of Special Relief)- whether or not relief was given, (although this last condition may be disregarded in exceptional circumstances).