Six-year limitation period for recovery of direct tax


Legislation to restore situation after adverse House of Lords decision

On 25 October 2006, the House of Lords allowed the appeal in the case Deutsche Morgan Grenfell Group Plc (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another, finding that the six-year limitation period for bringing a claim against HMRC for payments of tax that had been made under a mistake of law must run from the date on which the mistake was discovered.

The decision has serious implications for the Exchequer and, in a written reply given on 1 November 2006, Dawn Primarolo, the Paymaster General, stated that, in cases similar to that involving Deutsche Morgan Grenfell Group, "the judgment will result in additional payments of around £;300 million".

The Government does not think that it is correct that HMRC should be restricted by the six-year limitation period with regard to the recovery of outstanding taxes but that taxpayers should have what is potentially a much longer period of time to claim repayment where discovery of the overpayment occurs many years after the date of the payment.

Accordingly, legislation will be introduced in the 2007 Finance Bill to ensure that the Limitation Act 1980, in so far as it provides for England and Wales an extended period for bringing actions for relief from the consequences of mistakes of law, does not apply to direct tax matters. The effect will be to limit the period for recovery of tax paid by mistake of law to six years.

This change in legislation will not change the application of the House of Lord's decision, that the six-year limitation period in respect of recovery of a payment made under a mistake of law starts when the mistake is first discovered, applies to payments other than payments of direct taxes.

...UK Payroll News - Latest


Source:
Six Year Limitation Period for all Direct Tax Claims

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