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HMRC SDLT: Overpayment Relief Exclusion: Mistakes in SA Returns and Prevailing Practice Explained

Overpayment Relief: Exclusions and General Practices

Overpayment relief is a process that allows taxpayers to reclaim tax overpayments. However, it is important to understand that such relief may not be available if the claim arises from a mistake in a Self Assessment (SA) return or other tax calculations, and if the tax liability was correctly calculated according to what was the accepted practice at that time. This guideline does not apply if the claim concerns income earned through PAYE (Pay As You Earn).

What is “Practice Generally Prevaling”?

The term ‘practice generally prevailing’ refers to commonly accepted standards or methods that have been in place for a reasonable amount of time and are recognized by both HMRC and taxpayers. The determination of whether a practice is considered ‘generally prevailing’ is based on facts and circumstances surrounding each case, as highlighted in the case of Rose Smith v HMRC (17 TC 586).

How “Practice Generally Prevailing” is Defined

In a ruling by Judge Henderson in the case of HMRC v Household Estate Agents Ltd, he explained the nature of a practice generally prevailing:

• A practice must be long-established.
• It needs to be easily discovered by those interested, such as taxpayers or their advisers.
• It should be accepted by both HMRC and the advisers who work with taxpayers.

Henderson J. compared this with a ruling made by Special Commissioners in the case of Rafferty v HMRC, underscoring that a practice cannot be viewed as generally prevailing unless it meets these criteria.

Burden of Proof in Appeal Hearings

When it comes to overpayment relief claims, the responsibility to prove the existence of a generally prevailing practice lies with HMRC during any appeal hearings. This means that HMRC must provide evidence to support their assertions about what constituted the accepted practice at the time the tax was calculated. Evidence that may be used includes:

• Guidance published by HMRC
• Advice from HMRC technical experts
• Reported legal cases related to tax issues
• Commentary from external sources or tax expert opinions

Implications of a Valid Claim for Overpayment Relief

Even if a practice is established as generally prevailing, it does not have to have been consistently followed by all taxpayers. However, should a tribunal or court find that a certain practice is incorrect, that decision indicates the practice has ceased to be accepted as generally prevailing. This remains the case even if HMRC chooses to appeal the decision.

For instance, if a tax practitioner relied on a prevailing practice to calculate tax, but a later ruling confirmed that calculation methodology was incorrect, the taxpayer can no longer rely on that practice for new claims. They would need to base any future claims on the latest guidance and decisions.

Example of Overpayment Relief Claim

Consider a taxpayer who completed their SA return using widely accepted practices at the time, which were later found to be flawed by a court decision. If this taxpayer had overpaid tax due to relying on that now-invalid practice, they must follow the new guidance provided post-decision in any future claims for overpayment relief. This ensures that the relief is aligned with current accepted practices.

External References and Resources

Taxpayers looking to understand more about overpayment relief and prevailing practices can consult various resources, including:

• HMRC’s published guidelines on overpayment relief
• Technical advice provided by HMRC specialists tackling overpayment scenarios
• Legal cases that have been previously reported, which set precedents for tax issues
• External commentary from tax experts and advisers, which may shed light on relevant practices

It is important to note that keeping informed about changes in practices or guidelines is crucial for taxpayers to successfully navigate their tax obligations and potential claims for relief.

Conclusion on Overpayment Relief Claim Validity

In summary, understanding the criteria and definitions surrounding overpayment relief, specifically regarding the concept of ‘practice generally prevailing,’ is essential for any taxpayer considering a claim. The burden of proof lies with HMRC to show that their claimed practices were the norm at the time taxes were assessed.