Compulsory reclaim of tax rebate

[janmayen]

I have been the subject of a tax enquiry, and letters have been flying between myself and the tax office for the last few months. We now seem to have reached the end of the road paperwise, and the taxman has asked to see me next week to conclude the case. Given that the position I am in has been explained clearly and from day 1, but has not been accepted, I presume that this meeting will result in us agreeing to disagree, and I will have to return the tax rebate.

I am currently a higher rate tax payer, but from 1 Jan will retire and be living off a pension. I understand that the reclaim of tax will be made by changing my tax code from April 06. My questions are:

a) what happens if the reclaimed amount is more than the monthly income? (which it will be by a factor of about 2.5)
b) is there a maximum percentage of my income that the taxman can take back each month?
c) will interest still be accruing if I pay back by installments?
d) what other alternatives do I have?

Many thanks

[King_Maker]

I assume you agree that you HMRC have erroneously made a Tax refund to you?

If you do so agree, then you need to consider whether Official Error (now called Revenue delays in using Information) applies so then some/all of the over-repayment can be waived.

If there is no joy, then you can appeal to the Adjudicator and/or the Ombudsman. See the booklet COP (Code of Practice) 1, downloadable from HMRC's website.

http://www.hmrc.gov.uk/leaflets/c11.htm

Don't forget to prepare fully for any meeting with HMRC.

[janmayen]

I don't agree at all that the tax was refunded erroneously, but I can't seem to make the taxman understand. Because I am about to undergo such a major change in finances, I just want to know what the worst case is, because he has already mentioned taking the money back through my tax code if we fail to agree at the meeting on Tuesday 20th.

However, I am interested to hear about this Official Error, or Revenue Delays in Using Information. I am/was a govt employee on PAYE with no other financial affairs that required a tax return (business, rental property etc).

In 2001/2 I was sent a self assessment form which I submitted and gained a small rebate (about £200), the following year this was randomly checked and all allowed.

In 2002/3 I was sent a self assessment form, and because my job location had changed I claimed for a fairly large business mileage rebate, the calculation for which and my reasons I clearly explained in the 'other info' box on the form. This rebate was paid (about £1500), and this return was not subject to an enquiry.

On that basis, in 2003/4 I made the same claim for business mileage, plus additional business expenses (about £3000). This 2003/4 claim is currently subject to an enquiry. I have accepted that the business travel claim for 2003/4 was not entirely valid (because of an interpretation of 'ordinary commuting') and have paid that rebate back on account. I tried to dispute that HMRC could reopen 2002/3 because it was more than 22 months since the end of that tax year. However, they said that because they could consider my 2003/4 claim to be (false/illegal/fraudulent, I forget the precise terminology but this was the gist), then they were able to go back this extra year. Therefore, I have repaid this money on account (approx £1500). If there is such a thing as an official error, I am wondering now if I should have done this, as I very clearly explained on the 2002/3 that I wasn't sure that my claim was correct, yet they allowed it.

Suffice to say, they have back on account about £3000, but I am still arguing that a further £1500 was paid out as a necessary part of my work and was 'wholly, necessarily and exclusively' etc. However, I gave them what I thought was incontrovertable evidence of this months ago, and they still keep wittering on about a Headmaster doing a history course and an articled clerk claiming exam fees, both of which cases I have read and neither are pertinent to my situation. I will be fully prepared to defend the final £1500, including a letter I now have from my employer saying I was employed to do this contested work (an educational course) and they should have paid for these things, but did not have the necessary systems in place etc. But knowing about 'Revenue delays in using information' might at least strengthen my arguement vis a vis the 2002/3 rebate they have on account.

Many thanks for your input.

[King_Maker]

It seems to me you have several issues here.

1. Are the relevant expenses claims valid?

Claims under Schedule E (now defunct) were/are notoriously difficult to sustain - mainly due the requirement of "necessarily". The word "necessarily" is a Schedule E restriction, under section 336 ITEPA 2003. It did not appear in the old Schedule D legislation (section 74(1)(a) ICTA), nor the new legislation (section 34(a) ITTOIA 2005). The Courts have decided it is an objective test - i.e it is not important that *you* had to incur the expense, but whether the employment required the expense. Have you read the IR booklet 480 which covers allowable expenses and taxable benefits for employees.

It is downloadable from their website.

http://www.hmrc.gov.uk/leaflets/menu.htm

2. Is the Tax Inspector too late to open an Enquiry for 2002-03?

You need to be certain that this is so. The 2004 case of Langham v. Veltema means that the 12 month Enquiry Window can be exceeded. HMRC have issued a Guidance Note :

www.hmrc.gov.uk/news/veltema_guide_note.pdf

3. If all else fails, then there is still the option. as I mentioned before, of applying to the Adjudicator or Ombudsman. The former does not have a bad track record for over-ruling HMRC - e.g. she (Dame Barbara Mills QC) upheld over 50% of the cases submitted (and not withdrawn)for the Year ended 31 March 2005.

http://www.adjudicatorsoffice.gov.uk/