Where HMRC Is Not Obligated To Honour A Reclaim.

(Overview: Process of Reclaiming SDLT)

Section Summary: This section explains when HMRC is not obligated to honour claims for overpaid Stamp Duty Land Tax (SDLT) due to mistakes in claims or elections, or if other relief options were available but not pursued.

Key Points

  • HMRC may refuse SDLT refunds if mistakes are made in claims or elections.
  • Refunds are also denied if taxpayers could seek relief through other means within the legislation but did not.

Main Principles The main principles are accountability and proactive engagement; taxpayers are expected to accurately make claims and utilise available legislative relief options responsibly.

The Finance Act 2003 outlines various scenarios under which HMRC are not required to process or pay out claims related to tax overpayments or miscalculations. These situations are detailed to ensure clarity around the circumstances under which taxpayers can expect to receive a refund or adjustment and when they might not. 

Mistakes in Claim or Election (Case A)

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may refuse to refund overpaid SDLT due to mistakes in making or not making a claim or election, emphasising the taxpayer’s responsibility to understand and meet claim criteria.

FA2003 legislation: (2)Case A is where the amount paid, or liable to be paid, is excessive by reason of— (a)a mistake in a claim or election, or (b)a mistake consisting of making or giving, or failing to make or give, a claim or election.

HMRC may refuse to refund overpaid SDLT if the overpayment was due to a mistake related to a claim or election. This can be broken down into two sub-categories:

  • Mistake in Making a Claim or Election:
    • This happens if there was an error in the process of making a claim or election. For example, if you claimed a relief you weren’t actually eligible for due to misunderstanding the criteria.
  • Mistake Due to Not Making a Claim or Election:
    • This occurs if you failed to claim a relief or make an election that would have reduced your SDLT liability. An example here could be not realising you were eligible for a particular relief and therefore not claiming it.

Why HMRC Might Not Pay Based on These Scenarios

Scenario: Mistake in a Claim or Election (Case A(a))

  • Reason for Refusal:
    • If you’ve made an incorrect claim or election, HMRC’s stance is that it’s your responsibility to ensure the accuracy of your claims. This includes understanding the eligibility criteria for any reliefs or reductions you’re claiming.
  • Example:
    • Suppose you purchase a property and mistakenly claim First-Time Buyer Relief, not realising the relief doesn’t apply to your situation. If HMRC determines the claim was incorrect, they may refuse a refund based on this mistake.

Scenario: Failing to Make or Give a Claim or Election (Case A(b))

  • Reason for Refusal:
    • HMRC expects taxpayers to be proactive in making any claims or elections that could affect their SDLT liability. If you miss out on a relief because you didn’t claim it in time or were unaware of it, HMRC may see this as your oversight.
  • Example:
    • If you’re eligible for Multiple Dwellings Relief but don’t claim it because you weren’t aware of it or misunderstood the eligibility criteria, HMRC might not approve a refund for the overpaid SDLT. This is because the overpayment resulted from a failure to make a necessary claim.

Availability of Other Relief Steps (Case B)

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may not process your claim if you can obtain relief through other steps specified in the legislation, emphasising the importance of using existing legal provisions first.

FA2003 legislation: (3) Case B is where the claimant is or will be able to seek relief by taking other steps under this Part of this Act.

Overview: If you can obtain relief by taking other steps available under the same part of the Act that your claim falls under, HMRC may not process your claim. This situation is referred to as “Case B”.

Why HMRC May Not Pay Based on Case B

  • Alternative Relief Available: The principle behind Case B is that if the legislation provides another way for you to seek relief, you are expected to pursue that route first. HMRC’s stance is that their resources should not be used to provide relief when there’s already a mechanism in place within the law for you to obtain it.
  • Encouragement to Use Existing Provisions: By directing claimants to use the specific provisions already available for relief, HMRC ensures that all taxpayers are making full use of the legislative framework designed to handle such situations.

Examples of Other Steps for Relief

  • Amending a Tax Return: If you’ve overpaid tax due to an error on your tax return, the primary step is to amend the return within the allowed timeframe, rather than directly claiming a refund from HMRC.
  • Using Specific Relief Provisions: For certain taxes, specific relief provisions may apply. For instance, if you’re seeking relief on Stamp Duty Land Tax for a transaction that falls within certain criteria, you should apply for that relief as outlined in the legislation, rather than submitting a separate claim to HMRC.

Missed Relief Due to Ignorance (Case C)

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may deny relief if the claimant missed the deadline despite knowing or having the means to know about the relief, emphasising the importance of timely action and awareness in tax matters.

FA2003 legislation: (4) Case C is where the claimant— (a) could have sought relief by taking such steps within a period that has now expired, and (b) knew, or ought reasonably to have known, before the end of that period that such relief was available.

Case C involves situations where a person (the claimant) misses the opportunity to claim a relief or refund because they did not take the necessary steps within the required time frame. Here are the key points:

  • Missed Deadline for Relief: The claimant had a window of time to seek relief or a refund but did not act before this period expired.
  • Awareness of Relief Availability:
    • The claimant knew, or should have known, that they could claim this relief before the deadline.
    • This implies that the claimant had enough information or access to information to be aware of the relief.

Why HMRC Would Not Pay Based on Case C

  • Responsibility on the Claimant: HMRC places the responsibility on the claimant to be informed about their tax affairs and to act within designated time frames.
  • Fairness and Efficiency: Enforcing deadlines ensures that the tax system is fair and efficient. Allowing late claims could lead to administrative issues and potential inequities.
  • Encouragement of Timely Compliance: By not honouring claims that fall under Case C, HMRC encourages individuals and businesses to stay informed and compliant with tax regulations and deadlines.

Example Scenario

Let’s consider a hypothetical example to illustrate Case C:

  • Situation: A business owner paid Stamp Duty Land Tax (SDLT) on a property purchase. They later learned about a relief they were eligible for that could have reduced their SDLT bill.
  • Missed Deadline: The relief had to be claimed within 12 months of the transaction. The business owner realised they were eligible for the relief 18 months after the payment.
  • Awareness: The business owner had attended a seminar about tax reliefs six months before the transaction and had been given a brochure that mentioned the specific relief. However, they did not act on this information.
  • Outcome: The business owner decides to claim the relief after the deadline. HMRC denies the claim based on Case C because the owner could have and should have known about the relief within the claim period but failed to act.

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Case D: Claims Made During or After an Appeal

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may not process an SDLT refund claim if the reasons for the claim have already been addressed in court or settled by agreement with HMRC, emphasising the finality of legal decisions and agreements.

FA2003 legislation: (5) Case D is where the claim is made on grounds that (a)have been put to a court or tribunal in the course of an appeal by the claimant relating to the amount paid or liable to be paid, or (b )have been put to His Majesty’s Revenue and Customs in the course of an appeal by the claimant relating to that amount that is treated as having been determined by a tribunal (by virtue of paragraph 37 (settling of appeals by agreement)).

Case D describes situations where HMRC might not process a claim for an SDLT refund. This generally involves cases where the reasons for your claim have already been considered through legal channels, either in court or directly with HMRC. There are two main circumstances under Case D:

  • Scenario D(a): Court or Tribunal Appeals
  • Scenario D(b): Appeals Settled by Agreement with HMRC

Scenario D(a): Court or Tribunal Appeals

This scenario applies if you’ve already taken your argument—that you believe you’ve overpaid SDLT—to a court or tribunal. If during an appeal related to the SDLT amount you’ve paid or are liable to pay, you’ve presented your reasons for believing an overpayment has occurred, and the court or tribunal has made a decision, HMRC is not liable to process a claim based on those same grounds. This is because:

  • Legal Precedent: The court or tribunal’s decision sets a legal precedent on the matter.
  • Finality: Allowing claims on grounds already judged would undermine the finality of court decisions.

Scenario D(b): Appeals Settled by Agreement with HMRC

This scenario occurs if you’ve appealed directly to HMRC about the SDLT you’ve paid, and your appeal has been settled by agreement—meaning you and HMRC reached a mutual decision without going to court. Even if this settlement didn’t formally involve a tribunal, it’s treated as though a tribunal had made a determination. Therefore, HMRC is not liable to give effect to a claim if:

  • The Grounds Are the Same: The reasons for your claim are the same as those discussed during the appeal process.
  • An Agreement Was Reached: You and HMRC came to a conclusive agreement on the SDLT amount, effectively settling the matter.

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Case E: Timing of Claims in Relation to Appeals

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may not approve an SDLT refund claim if you knew or should have known the grounds for the claim before key deadlines related to court decisions or appeal withdrawals, emphasising the importance of timely and informed action in tax matters.

FA2003 legislation: (6)Case E is where the claimant knew, or ought reasonably to have known, of the grounds for the claim before the latest of the following (a)the date on which an appeal by the claimant relating to the amount paid, or liable to be paid, in the course of which the ground could have been put forward (a “relevant appeal”) was determined by a court or tribunal (or is treated as having been so determined), (b) the date on which the claimant withdrew a relevant appeal to a court or tribunal, and (c) the end of the period in which the claimant was entitled to make a relevant appeal to a court or tribunal.

Case E focuses on situations where you, as the claimant, knew or should have reasonably known that you had grounds for a claim before certain key dates. Here’s what that means in plain English:

  • If You Knew or Should Have Known: This part is about whether you were aware, or should have been aware, that you could make a claim for overpaid SDLT. It’s not just about knowing you paid too much; it’s about knowing you had a reason or a right to ask for some of that money back.

There are three specific time frames mentioned in Case E that are important for understanding when HMRC might not pay a claim:

  1. After a Court or Tribunal Decision: If you had a chance to appeal the amount of SDLT you paid and that appeal was decided by a court or tribunal, any claim must be based on information you didn’t already have before that decision.
  2. After Withdrawing an Appeal: If you started an appeal about your SDLT payment but then decided to withdraw it, you can’t later make a claim based on information you had at the time you withdrew.
  3. After the Appeal Period Ends: There’s a window of time when you’re allowed to appeal your SDLT payment. If you knew, or should have known, that you could make a claim during this period but didn’t, HMRC might not pay out if you try to claim after this window has closed.

Why HMRC Might Not Pay Based on These Scenarios

The reason HMRC might not pay out in these scenarios is fairly straightforward:

  • Fairness: The rules are designed to ensure fairness. If you knew you had grounds to challenge or question your SDLT payment but didn’t act on it within the appropriate times, it wouldn’t be fair to allow a claim much later.
  • Timeliness: These rules encourage timely action. The legal system and HMRC rely on deadlines to manage cases and claims efficiently. Allowing claims based on information you had well before these deadlines could disrupt this efficiency.
  • Responsibility: As a taxpayer, you have a responsibility to be aware of your tax affairs. If you have information that could affect your SDLT payment, it’s expected that you act on it within the set time frames.

 —

Claims Following Enforcement or Agreement (Case F)

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may not issue refunds for payments made due to legal enforcement or agreements settling disputes, as these payments are considered final and binding.

FA2003 legislation: (7) Case F is where the amount in question was paid or is liable to be paid (a) in consequence of proceedings enforcing the payment of that amount brought against the claimant by His Majesty’s Revenue and Customs, or (b) in accordance with an agreement between the claimant and His Majesty’s Revenue and Customs settling such proceedings.

Case F covers two specific circumstances where HMRC might not issue a payment or refund that you might otherwise expect. These are:

  • Payments Made Due to Legal Proceedings (Case F(a)): This scenario occurs when you’ve made a payment because HMRC has taken you to court to enforce the payment of a certain amount. If you’ve paid the amount in question as a result of these legal proceedings, HMRC may not consider you eligible for a refund or repayment of that amount.
  • Payments Made Following an Agreement (Case F(b)): This situation applies when you’ve come to an agreement with HMRC to settle a dispute out of court, and as part of that agreement, you’ve made a payment. Even if later it appears that this payment might not have been necessary, HMRC may not refund this payment.

Why HMRC Would Not Necessarily Pay

The rationale behind HMRC’s stance in these scenarios includes:

  • Legal Enforcement: If HMRC has had to go through legal proceedings to enforce a payment, this typically means there was a significant dispute over the amount owed. Once settled in court, the case is considered closed, and the payment made in consequence of this process is seen as final.
  • Settlement Agreements: When you enter into an agreement with HMRC to settle a dispute, this agreement is binding. Payments made as part of such settlements are considered part of the resolution process, closing the matter. Revisiting these payments could undermine the finality of the settlement.

Mistakes in Tax Liability Calculation According to Prevailing Practices (Case G)

(Overview: Process of Reclaiming SDLT>Where HMRC Is Not Obligated To Honour A Reclaim)

HMRC may not refund tax overpayments made due to calculation errors if those calculations followed commonly accepted practices at the time, unless the tax was charged in a way that goes against EU law.

FA2003 legislation: (8) Case G is where (a) the amount paid, or liable to be paid, is excessive by reason of a mistake in calculating the claimant’s liability to tax, and (b) liability was calculated in accordance with the practice generally prevailing at the time. 

[F2(9)Case G does not apply where the amount paid, or liable to be paid, is tax which has been charged contrary to EU law. 

(10)For the purposes of sub-paragraph (9), an amount of tax is charged contrary to EU law if, in the circumstances in question, the charge to tax is contrary to (a) the provisions relating to the free movement of goods, persons, services and capital in Titles II and IV of Part 3 of the Treaty on the Functioning of the European Union, or (b) the provisions of any subsequent treaty replacing the provisions mentioned in paragraph (a).

Case G involves two main points:

  • Excessive Payment Due to a Mistake: This is when you’ve paid more tax than you should have because there was a mistake in working out how much tax you owed.
  • Practice Generally Prevailing: At the time you calculated your tax, you followed the methods or rules that were commonly accepted as correct.

In simple terms, if you overpaid your tax because of a mistake but the mistake was made by following the tax calculation methods that were generally accepted at the time, HMRC might not refund the overpaid amount.

Exceptions to Case G

However, there’s an important exception to Case G:

  • Contrary to EU Law: If the reason you overpaid your tax is because the tax was charged in a way that goes against EU law, then Case G does not apply. In other words, HMRC would still have to refund the overpaid tax.

EU law, in this context, refers to rules about:

  • Free Movement: The laws that allow goods, people, services, and money to move freely between EU countries.
  • Treaties: Any agreements made after these laws that replace or update them.

Examples

  • Example 1: Imagine you’re a business owner who overpaid corporation tax because you miscalculated your profits. At the time, the way you calculated it was the usual way everyone did. In this case, HMRC might not refund the overpayment because you followed the common practice, even though it led to a mistake.
  • Example 2: Now, suppose you’re the same business owner, but the reason you overpaid was that HMRC applied a tax rule that unfairly restricted your business’s ability to trade with other EU countries. Since this goes against EU laws about free movement, HMRC would need to refund the overpaid tax, despite Case G.

Why HMRC Might Not Pay Based on Case G

The main reason HMRC might not refund overpaid tax due to Case G is the principle of following common practice. If everyone thought a certain way of calculating tax was correct, even if it turns out to be wrong, HMRC does not automatically have to refund the overpaid amount, unless it contravenes EU law.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.