Clause 228 - Overpayment relief: generally prevailing practice exclusion and EU law

Finance Bill – in a Public Bill Committee am 3:30 pm ar 20 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

On a point of order, Mr Amess. If we were able to deal with clause 229 simultaneously, I would be content, given that both clauses relate to similar matters.

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

I get the sense that that would be perfectly acceptable.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Clauses 228 and 229 are fairly straightforward. As every member of the Committee undoubtedly knows, overpayment relief provisions provide relief when tax has been paid, or a person is liable to tax, as a result of an assessment or determination that the taxpayer believes is not correct, meaning that the tax is not due. The provisions apply to income tax, capital gains, corporation tax, petroleum revenue tax and stamp duty land tax. The case law of the European Court of Justice confirms that EU member states should provide remedies, subject to reasonable time limits, for tax charges that are contrary to EU law. At present, that can be dealt with either in general non-legislative rights, such as under common-law remedies, or through legislation. If legislation is provided and includes reasonable time limits, general non-legislative case law arrangements are usually not accepted by the courts.

Clause 228 amends existing legislation to confirm that when a tax was levied contrary to EU law, overpayment relief will not be affected by any prevailing common-law practices. Clause 229 amends the four-year time limit for overpayment relief claims to make it clear that the four years run from the period to which the mistakes relate.

Will the Minister explain why the measures will have effect for claims received on and after the end of the six-month period following Royal Assent? I assume that that is because, under EU law, notice must be given when a relief is curtailed. Secondly, will he explain the time difference? While there is provision regarding a four-year period from the end of the relevant tax year, the residual rights for taxpayers to reclaim overpaid tax via their general non-legislative rights are slightly more generous, in that there is typically a time limit of six years from the discovery of the mistake. Why is there an anomaly in the time frames?

My questions are very specific, and I am sorry to fire them at the Minister, but I am sure that he knows the answers.

Photo of David Gauke David Gauke The Exchequer Secretary 3:45, 20 Mehefin 2013

I am grateful to the hon. Gentleman for his specific questions, but before I deal with them, I shall provide some brief background to the measures.

Clause 228 ensures that legislation provides for a consistent approach to claims for overpaid tax and the application of overpayment. Clause 229 makes a small  technical amendment to overpayment relief provisions to ensure that there is a consistent time limit for overpayment relief claims.

Overpayment relief is intended to provide a final opportunity for taxpayers to reclaim overpaid tax. A general restriction within overpayment relief means that relief is not available when a return was submitted in accordance with the practice generally prevailing at the time that return was made. In cases when overpayments are claimed in relation to EU law, it is a general principle that member states must allow an effective means of restitution. A recent judgment of the Supreme Court, while not dealing directly with overpayment relief, suggested that the application of practice generally prevailing could mean that overpayment relief does not provide an effective means of restitution under EU law. That could lead to claimants seeking common-law restitution in the case of such EU law claims, which would undermine the purpose of the legislation of providing a single remedy that would apply to all taxpayers. In addition, common-law claims may have much longer time limits than claims for overpayment relief and could result in substantially larger amounts being repaid, which would introduce inconsistency and unfairness between taxpayers.

The changes made by clause 228 will ensure that overpayment relief applies to all repayment claims, whether or not the overpayment arises as a result of EU law, which achieves the original policy intention. That will be done by removing the “practice generally prevailing” restriction in cases when the claim relates to tax paid contrary to EU law. The change will put on a statutory footing HMRC’s current practice of disapplying the “practice generally prevailing” restriction. Clause 229 ensures that the time limit for claims for overpayment relief following a mistake in a return runs in every case from the return year. That change is likely to be relevant to only a small number of businesses.

The hon. Member for Nottingham East asks why there is a transitional element. The answer is that we want to be consistent with EU law. He also asked about the anomaly in the time limits for claims. The time limit for overpayment relief is four years. Six years is the limit for common-law claims. Tax law allows for only four years, and we want to put that matter beyond doubt, so I hope that that provides clarity. I hope that the Committee will agree to clauses 228 and 229.

Question put and agreed to.

Clause 228 accordingly ordered to stand part of the Bill.

Clause 229 ordered to stand part of the Bill.