HMRC published Revenue and Customs Brief 22/10 which details the introduction of over-payment relief from 1 April 2010. The brief also sets out how HMRC consider practice generally prevailing affects overpayment relief and error or mistake relief claims, following the judgment of the Court of Appeal in the Franked Investment Income Group Litigation.

Overpayment Relief

It is no longer possible to claim error or mistake relief for income tax, capital gains tax and corporation tax. From 1 April 2010, this has been replaced by overpayment relief.

Other formal or informal processes for reclaiming overpayments have not changed.

Practice Generally Prevailing

Both error or mistake relief and overpayment relief have an exception where the tax was calculated in accordance with prevailing practice at the time.

HMRC have considered the comments of the Court of Appeal concerning prevailing practice in the Franked Investment Income Group Litigation (paragraphs 255 to 264 of the judgment).

In the view of the court, the practice generally prevailing exception is to be read as subject to the limitation ‘that it applies only if and to the extent that the United Kingdom can, consistently with its [EU] treaty obligations, impose such a restriction’. The court concluded that practice generally prevailing does not affect a claim for repayment of taxes paid in breach of EU law.

HMRC understand this principle also applies to the new overpayment relief. Therefore, if a claim for error or mistake relief or overpayment relief relates to taxes paid in breach of EU law, HMRC will not seek to disallow it on the basis that the tax liability was calculated in accordance with the prevailing practice.

The other conditions for error or mistake relief and overpayment relief, such as time limits, will still need to be met in all cases.

For more information go to http://www.hmrc.gov.uk/briefs/company-tax/brief2210.htm