Revenue Tax Briefing Issue 56, July 2004

Repayments, Interest & Time Limits S. 17 FA 2003

Claims for repayment, interest on repayments and time limits for assessment. Section 17 FA 2003 changes

New Scheme for Claims for Repayments of Tax, Interest on Repayments and Time Limits for Assessments

Repayments and Time Limits for Assessments

Section 17 FA 2003 provides for a new scheme to deal with claims for repayments, interest on repayments and Revenue’s right to raise assessments. Section 17 FA 2003 takes effect by way of a Ministerial Commencement Order, which was signed on 31 October 2003.

The purpose of this article is to explain how the new scheme affects income tax repayments.

Main features of the new scheme

The main features of the scheme are:

There is now a new general statutory right to repayment of tax.
The repayment is subject to a claim being made to Revenue within 4 years from the end of the period to which it relates. This is subject to transitional arrangements for the existing time limits for repayment, the longest of which is 10 years. These are explained in more detail below.
The 4 year time limit applies to immediate claims as and from 31 October 2003, which were not previously provided for by statute, and to all claims made for chargeable periods beginning on or after 1 January 2003 and later years.
Where a claim to repayment for an earlier year is currently subject to a longer time limit, e.g. a claim to repayment of preliminary tax can be made within 10 years, the 10 year time limit remains in place until 31 December 2004.
Interest will in future be paid on repayments at a rate of 0.011% per day or part of a day. This interest is tax free in the hands of the taxpayer.
Where the repayment arises because of a mistaken assumption of the law by Revenue, the interest will be calculated from the end of the tax period to which the repayment relates or, if later, from the date when the tax was overpaid. In all other cases, including repayments of preliminary tax, interest will run from 6 months after a valid claim to the repayment is made.
Finally, apart from cases where fraud or neglect is suspected where there are no time limits, from 1 January 2005 Revenue’s right to raise assessments and make enquiries is reduced to a 4 year period in line with the limitation on the taxpayer’s right to claim repayment

General pre-Finance Act 2003 position

Instances of statutory rights to repayment of income tax

Apart from the common law right of repayment of tax under a mistake of law, there are many instances of repayment of income tax contained in the Taxes Acts. The most common instances of repayment are as follows:

Right of repayment of preliminary tax exists under Section 953(7) TCA, 1997. If the preliminary tax paid exceeds the net tax payable (after deducting credits and reliefs against tax), the amount of the excess is repayable to the chargeable person with interest.
Right of repayment of overpaid income tax where a taxpayer made an error or mistake claim in accordance with Section 930 TCA, 1997 and this claim has been accepted. This repayment does not attract interest. Section 930 only applies where tax is charged by an assessment and not where excess tax has been suffered by deduction at source.
Right of repayment of income tax overpaid in accordance with a determination of Appeal Commissioners and where the assessment was appealed and subsequently altered by either a High Court or Supreme Court order: Section 941 TCA, 1997. This repayment may attract Court interest.
Right of repayment of income tax overpaid in accordance with a determination of the Appeal Commissioners and where the assessment was appealed and altered by Circuit Court or by subsequent agreement with the Inspector: Section 942 TCA, 1997. This repayment attracts interest.
Right of repayment of tax by reference to losses under Section 381 TCA, 1997.

Some existing time limits for repayment of income tax

The general limit of time for income tax repayment claims is contained in Section 865 TCA, 1997. This provides that any claim for repayment must, unless otherwise specifically provided, be made within 10 years of the end of the year of assessment or accounting period to which it relates.
The time limit for a claim to repayment of income tax paid by way of error or mistake in a tax return made by a person is not later than 6 years after the end of the year of assessment in which the assessment was made: Section 930 TCA, 1997.
The time limit for a claim to repayment of income tax by reference to losses is 2 years after the end of the year of assessment.

The pre FA 2003 position is in general summarised in a Table A on page 11.

Interim measures for interest on preliminary tax overpaid

To facilitate the transition to the new scheme for repayments, interest on repayments and assessments, the Commencement Order provides three main operational dates for Section 17 FA 2003 to take effect for different purposes. These are outlined in the Table B on page 12.

For repayment with interest purposes, the most important of these is the measure affecting repayment of preliminary tax under Section 953 TCA, 1997. In general, this right to repayment of income tax in Section 953 with interest no longer exists from 1.11.2003 as respects payments of preliminary tax made on or after that date. However, Section 953 continues to have effect for the year of assessment 2003 (ceasing only on 1.11.2004) where preliminary tax has been paid before 1.11.2003 and where the return for 2003 is lodged with the Collector-General on or before 31.10.2004 - the 2003 return filing date. This means that repayment of tax and interest arising on PT payments made after 31.10.2003 is subject to the new Section 865 and Section 865A rules.

Example 1

Repayment of PT for 2003 with interest where timely return made

A taxpayer made a payment of preliminary tax of €6,000 for 2003 on 30.11.2003 as income tax for 2003 (30 days late). Following the submission of the taxpayer’s income tax return on 30.11.2004 (30 days late), the inspector made an assessment based on the return determining the taxpayer’s income tax payable for 2003 as €4,500. The inspector instructs the Collector-General to repay the €1,500 overpaid.

The taxpayer is entitled to receive interest on the overpayment. As the payment of preliminary tax was made after 1.11.2004 and the return for 2003 was filed 30 days late, the taxpayer’s entitlement to a repayment arises under the new Section 865 TCA, 1997. The taxpayer’s entitlement to interest on this tax arises under Section 865A TCA, 1997. This section is explained in more detail on page 9.

New scheme from 31.10.2003 and onwards

New general statutory right to repayment of tax overpaid

Section 17 FA 2003 substitutes a new Section 865 TCA, 1997 with effect from the day of the making of the Commencement Order, i.e. 31 October 2003. The new section provides for a general right to repayment of tax overpaid subject to a 4 year claim limitation period. Previously there was no general statutory right to repayment of tax overpaid.

It provides in subsection (2) that where a taxpayer overpays tax, which he/she was not obliged to pay, for whatever reason including an error or mistake in a return or statement made for the purposes of an assessment, then the taxpayer is entitled to repayment of the tax overpaid.

In the context of the claim to repayment of tax Section 865(3) provides that a taxpayer must make a valid claim in order to be entitled to a repayment.

What is a valid claim?

A valid claim to repayment of tax is regarded as having been made by a taxpayer in any of the three following circumstances:

A valid claim arises where a statement or return which the taxpayer is required to furnish under the Acts, contains all the information which the Revenue would reasonably require to determine the amount, if any, of the repayment.

Example 2

A taxpayer filed his return of income Form 11 for 2004 on 31.10.2005. The return correctly stated the amount of each item of income to be taxed and full and correct details of all deductions, tax credits and reliefs claimed for the chargeable period. On receipt of the return the inspector made an assessment based on the return, which resulted in a repayment of income tax. The taxpayer’s return is taken as a valid claim for a repayment and is effective from 31.10.2005 because it contained all the necessary information to determine the amount of the repayment.

A valid claim is made where such a statement or return is either not required or it does not contain all the necessary information, when all that information is furnished.

Example 3

A taxpayer filed his return of income Form 12 for 2004 on 31.10.2005. The return correctly stated the amount of each item of income to be taxed but did not contain the correct details of PRSA relief claimed. The taxpayer had inserted in the PRSA panel “details to follow”. On receipt of the Form 12 the inspector wrote to the taxpayer and asked for full details of the amount paid for which relief was claimed for 2004. The taxpayer did not furnish this information until 31.3.2006. The claim for relief resulted in an overpayment of PAYE for 2004, but the claim did not become a valid claim until 31.3.2006 when all the information to determine the amount of a repayment was furnished to the inspector.

A valid claim arises where a repayment of tax arises from a correlative adjustment when the two States agree the amount of the adjustment in writing. A correlative adjustment means an adjustment of a taxpayer’s profits, which happens under the terms of a Double Taxation Treaty.

Time limits for repayment claims

Subsections (4) and (5) of Section 865 TCA, 1997 provide for time limits for repayment claims (not just “valid claims”) as follows:

Preservation of old time limits

Where a claim to repayment is made on or before 31.12.2004 where there was an existing right to repayment in relation to a chargeable period ending on or before 31.12.2002, e.g. there was an existing right to repayment of preliminary tax under Section 953 TCA, 1997 for the year of assessment 2002, the time limit for claiming this repayment is the existing 10 year time limit.

This means that a taxpayer can claim a repayment before 31.12. 2004 under Section 953 TCA, 1997 for any year of assessment the end of which is within 10 years of the date of claim. In practical terms the taxpayer can claim a repayment of preliminary tax overpaid back as far as 1994/1995 provided he/she claims before 31.12.2004.

Example 4

Repayment of PT where existing right under Section 953

A taxpayer made a payment of preliminary tax for the year of assessment 2002 on 30 October 2002 (1 day before the due date) of €10,000. Following the submission of the taxpayer’s return of income (Form 11 for 2002) on 30 October 2003, the inspector made an assessment based on the return determining the taxpayer’s income tax liability for 2002, as €8,000. The inspector instructs the Collector-General to repay the €2,000 with interest under Section 953 TCA, 1997, which the Collector-General does on 30 November 2003. The claim was made before 31.12.2004 and is allowable under Section 953 as it is made within the old 10-year time limit.

Example 5

Repayment where existing right under Section 930

A taxpayer made a computational error in his tax return for 2001, which resulted in him being overcharged to income tax for that year. He must apply to the Revenue Commissioners under Section 930 TCA, 1997 and state that the assessment was excessive due to the error or mistake in the return made by him for the purposes of the assessment. He must make this application in writing under Section 930 TCA, 1997 on or before 31.12.2004. Such a claim will be successful being within 6 years of the end of the year of assessment to which it relates (2001). If the claim is not made before 31.12.2004 it cannot be dealt with under Section 930 TCA, 1997 and will instead be dealt with under the new Section 865 TCA 1997 with its 4 year time limit on claims.

New time limit of 4 years for certain claims

This applies where:

There was no existing right to repayment under the Acts,
For claims in respect of all chargeable periods going forward from 2003, i.e. chargeable periods beginning on or after 1.1.2003, and
For claims made on or after 1.1.2005 In all cases the time limit is 4 years after the end of the chargeable period to which the claim relates.

Example 6

Repayment for chargeable period 2003 where return repaired

A taxpayer paid preliminary tax for the year of assessment 2003 on 31.10.2003 of €5,000. Following the submission of the taxpayer’s return of income (Form 11 for 2003) on 30 October 2004, the inspector made an assessment based on the return determining the taxpayer’s income tax liability for 2003, as €5,000. An assessment was raised in accordance with the return and as the preliminary tax paid discharged the net tax payable there was no additional tax due. The assessment issued on 20 January 2005. After the assessment issued the taxpayer noticed that he had not claimed film relief and requested a repair of the return on 25 September 2005. The Inspector repaired the return in accordance with the practice of “repairing” returns as outlined in Tax Instruction 39.2.1. The Inspector made an amended assessment, giving rise to a repayment of €2,000, in accordance with Section 955 TCA, 1997. Under the new Section 865 TCA, 1997 the taxpayer has until 31.12.2007 to make the request to repair the return to give rise to the repayment.

Example 7

Repayment where claim made after 1.1.2005

A taxpayer paid preliminary tax for the year of assessment 2004 of €3,000 as income tax for 2004 on 31.10.2004. Following the submission of the taxpayer’s income tax return on 31.10.2005 [the specified due date for 2004], the inspector made an assessment based on the return determining the taxpayer’s income tax payable for 2004 as €2,500. The submission of the return, which allowed the inspector to determine the amount of the repayment, constitutes a valid claim for the purposes of Section 865(3) TCA, 1997. The inspector instructs the Collector-General to repay the €500 overpaid. The taxpayer is entitled to interest under Section 865A TCA, 1997 in respect of the repayment and not under Section 953 TCA, 1997. He/she has until 31.12.2008 to make a claim for repayment.

Interest on tax Overpaid

Pre-FA 2003 position where preliminary tax overpaid

Under the old Section 865 TCA, 1997 (which is still operative in certain circumstances as outlined above), there is provision for interest to be paid where an overpayment of preliminary tax arises because the amount of preliminary tax paid exceeds the income tax finally due as determined after the tax return has been filed.

The rate of interest payable by Revenue since 1971 on preliminary tax overpaid is outlined below.

0.75% for any month or part of a month commencing on or after 1/8/1971

1.50% for any month or part of a month commencing on or after 1/5/1975

1.25% for any month or part of a month commencing on or after 1/8/1978

1.00% for any month or part of a month commencing on or after 27/5/1982

0.60% for any month or part of a month commencing on or after 1/8/1990

0.50% for any month or part of a month commencing on or after 27/3/1998

0.0161% for any day or part of a day commencing on or after 1/9/2002

New scheme for repayment of tax with interest where tax (not just preliminary tax) overpaid

New Scheme

Section 17 FA 2003 inserted the new Section 865A TCA, 1997 in relation to repayments of tax made after on or after 1.11.2003. The section provides for a general scheme of interest on repayments of income tax, corporation tax and capital gains tax.

The provision amends the interest rate on all tax overpaid (including preliminary tax overpaid) to 0.011% for any day or part of a day commencing on 1.11.2003.

The new rate amounts to approximately 4% per annum.

All repayments must be subject to a valid claim.

The claim to repayment [not just valid claims] must be made within four years from the end of the period to which it relates.

The taxpayer is not entitled to interest on an overpayment of tax if the interest is less than €10.

The interest is receivable without deduction of tax and is not treated as income for any tax purpose.

Interest does not apply for any period where a repayment is withheld in accordance with Section 1006A TCA, 1997 (offset of taxes provision) or withheld because a return is outstanding.

Repayments due to mistaken assumption by Revenue

Where the repayment due arises from a mistaken assumption by Revenue in the application of the law, then the interest will be paid from the end of the chargeable period or, if later, when the tax was paid until the repayment is made.

Mistaken assumption cases would be those where, for instance, the High Court or the Supreme Court or the ECJ had found against Revenue’s interpretation of the law. Repayment cases where a settlement was reached with the taxpayer would not normally fall into this category.

Other repayments

In the case of all other repayments, including repayments of preliminary tax, interest will be paid from 6 months after a claim becomes a valid claim until the repayment is made. Included here are cases where there has been an administrative delay on the part of Revenue in processing a valid claim. However, no interest is payable in respect of days when a repayment is withheld pending the receipt of information which the taxpayer was reasonably obliged to submit with a valid claim. This can arise where the taxpayer inserts the phrase “details to follow” on a return form. In such a case the claim is not a valid claim until the information is furnished.

Example 8

Repayment of PAYE

A taxpayer with Schedule E PAYE income made a return of income (Form 12) for the year of assessment 2004 on 1.10.2005 showing Schedule E income with a credit for PAYE deducted. During the tax year 2004 the taxpayer incurred certain qualifying medical expenses in that he paid €30,000 for the maintenance of his ailing mother in a nursing home. He made a claim for these expenses when submitting the Form 12 on a Med 1 Form, which resulted in an overpayment of €12,000 PAYE tax. However, on 31.3.2006 the inspector queried the overpayment and requested a medical certificate to the effect that the taxpayer’s mother has need of the nursing services. The taxpayer did not receive his repayment until 30.5.2006. The claim to repayment became a valid claim on 31.10.2005 when the taxpayer furnished his Form 12 and Med 1, which contained all the information for Revenue to determine the amount of the repayment. The taxpayer Continued on page 10 is entitled to interest on this repayment of PAYE from 1.5.2006 (a period of 6 months after the date on which the claim for repayment became a valid claim), i.e. 30 days. The interest is calculated as follows:

Interest on PAYE of 12,000 × 0.011% × 30 days = €39.60

Example 9

Repayment of PSWT and PT

A taxpayer who suffered PSWT of €10,000 in 2004 paid preliminary tax of €20,000 as income tax for 2004 on 31.10.2004. Due to an oversight on his part he did not make a return of income for the year of assessment 2004 until 31.10.2006 when he was filing his return for 2005. Following the submission of the taxpayer’s 2004 income tax return on 31.10.2006 the inspector raised a query in relation to the PSWT credit claimed, as the PSWT credit on the return was not shown - rather the panel was completed “details to follow”. When the relevant information was submitted on 1.1.2007 the inspector made an assessment based on the return determining the taxpayer’s income tax payable for 2004 as €25,000 (including a surcharge for filing the return late). This resulted in an overpayment of both PSWT and PT amounting to €5,000. €2,000 of this overpayment arose from PSWT. The inspector did not make the assessment until 31.8.2007.

The taxpayer is entitled to receive interest on this overpayment under the new Section 865A for a period of two months July and August 2007 (62 days) only as the taxpayer is denied interest for the first six months after the claim for the repayment becomes a valid claim. The repayment only arises when the taxpayer made a valid claim under Section 865 TCA, 1997 (as inserted by Section 17 FA 2003). In this case the date the taxpayer submitted the relevant PSWT credit figure is the date of the valid claim, i.e. 1.1.2007. This date is within the time limit of four years of the end of the chargeable period 2004 to which the claim relates. It therefore constitutes a valid claim made within the time limit.

The interest is calculated as follows:

Interest on PSWT of
€2,000 × 0.011% × 62 days	= 13.64

Interest on PT of

Total interest on overpayment	= 20.46
€3,000 × 0.011% × 62 days	= 34.10

PT payments made before 1.11.2003

There is a qualification to the general position above, in the case of preliminary tax payments made before 1.11.2003 where the return has been lodged with the Collector-General by 31.10.2004. In such cases the old Section 953 scheme and the old rate of interest on overpaid tax contained in Section 953 TCA, 1997 applies.

Example 10

PT for 2003 overpaid

An architect taxpayer paid preliminary tax of €10,000 on 31.10.2003 as income tax for 2003. He suffered PSWT of €2,000 in 2003 on 31.12.2003. Following the submission of his return on 30.10.2004 the inspector made an assessment based on his return determining the taxpayer’s income tax payable for 2003 as €9,000. The inspector did not make the assessment, which resulted in an overpayment of €3,000 until 31.7.2005 due to a large volume of tax returns to be processed. The overpaid tax was repaid on that date. €2,000 of the overpayment arose from overpaid preliminary tax. The balance of the overpayment arose from the PSWT deducted.

The taxpayer is entitled to interest on this overpayment as follows:

Interest on the overpayment of PT is based on the old scheme under Section 953 TCA, 1997 as the PT for 2003 was paid by the due date and the taxpayer had filed his return on time.

This is calculated as follows:

PT overpaid
€2,000 × 0.0161% × 273 days	= 87.90

The repayment of PSWT overpaid is based on an entitlement to repayment under the new Section 865 TCA, 1997 and interest on this repayment is calculated in accordance with Section 865A TCA, 1997 as follows:

The taxpayer is denied interest for the first 6 months after the date of the valid claim, i.e. 6 months from 30.10.2004. This leaves a period of 3 months - May, June and July for interest (92 days).

PSWT overpaid
€1,000 × 0.011% × 92 =	10.12

The total interest repayable is €98.02

Table A

Summary of General Pre-FA 2003 position

Tax overpaid	Pre-FA 2003 position	Pre FA 2003 Time limit for repayment	Pre FA 2003 Interest on overpayment
Preliminary tax	S. 953(7) TCA, 1997	10 years	Yes.
Tax paid by way of error or mistake	S. 930 TCA, 1997	Application in writing within 6 years after the end of year of assessment within which assessment made	No.
Income tax paid in accordance with determination of Appeal Commissioners and assessment altered by High Court or Supreme Court order	S. 941(9) TCA, 1997	10 years	Interest, if any, as the Court may allow.
Income tax paid in accordance with determination of Appeal Commissioners and altered by Circuit Court or agreement with Inspector	S. 942(6) TCA, 1997	10 years	Yes.

Table B

FA 2003 Changes and Transitional Provisions

Repayments and Interest on repayments

Taxes Consolidation Act	What it does	FA 2003 change	Date old provision operative until	Date operative or deleted
865	Provides a 10-year time limit for repayment of IT, CT or CGT.	S. 17(1)(a) substitutes a new S. 865	31.10.2003	Operative 1.11.2003. New time limits and claim to repayment rules
865A	Interest on repayments	New provision inserted by S.17(1)(a)	31.10.2003	Operative 1.11.2003 in relation to repayments of tax made after that date
941(9)(a)	Repayment of tax arising under S.941 by virtue of an order/judgment of High or Supreme Court	S. 17(1)(b) substitutes a new S.941(9)(a). Attracts interest under S.865A	31.10.2003	Operative 1.11.2003 for repayment arising under s.941 under High or Supreme Court orders or judgments made on or after 1.11.2003
942(6)(b)	Repayment of tax arising from a determination by Circuit Court judge under S.942 or an agreement referred to in S.942 (8)	S.17(1)(c) substitutes a new S.942(6)(b). Attracts interest under S.865A	31.10.2003	Operative 1.11.2003 for repayment arising under S.942 from Circuit Court determination or Inspector agreement

Table C

Sections repealed in their entirety

Taxes Consolidation Act	What it does	FA 2003 change	Date old provision operative until	Date operative or deleted
930	Error or mistake claim by taxpayer within 6-year time limit. Repayment does not attract interest.	S.17(1)(d) deletes the provision.	31.12.2004	Deleted 1.1.2005 but without prejudice to any application for relief made under s.930 before that date
953	Right to repayment of preliminary tax with interest.	S.17(1)(d) deletes the provision subject to a transitional period.	Generally deleted w.e.f. 1.11.2003 as respects payments of preliminary tax made on or after 1.11.2003. But see 2003 PT transitional rule	Deleted w.e.f. 1.11.2004 as respects payments of preliminary tax made before 1.11.2003 unless return is lodged with CGs by 31.10.2004.