I beg to move amendment 71, in schedule 52, page 377, line 23, leave out , or ought reasonably to have known,.
Let me say first that this schedule addresses the recovery of overpaid tax. Amendment 71 deals with those circumstances where the commissioners are not liable to give effect to a claim if particular circumstances apply; there is a list of those circumstances in the Bill. Specifically, amendment 71 relates to cases where the claimant
could have sought relief by taking such steps within a period that has now expired, and knew, or ought reasonably to have known, before the end of that period that such relief was available.
The particular words that we have concern with are:
or ought reasonably to have known.
Essentially, this is an objective test that may exclude from claims those taxpayers who should have realised that they had an opportunity to act but did not do so. Consequently, the people most likely to be affected by this particular provision are the less sophisticated and unadvised. They may well be caught by this restriction and would therefore not be able to recover overpaid tax. I would be grateful if the Minister explained why that is justifiable. For the sake of completeness, the ought reasonably have known test applies in one other place in this schedulein paragraph 2(6). I will turn to that in a brief stand part debate, but I would be grateful if the Minister explained the purpose of the objective test in these circumstances.
The provisions are intended to provide a final opportunity for taxpayers to reclaim overpaid tax. They modernise a system originally enacted in 1923, which has increasingly been criticised by the courts as anachronistic and inconsistent with a rights-based culture. The provisions simplify the recovery of overpaid income tax, capital gains tax and corporation tax by providing taxpayers with a single route of claim. Claims will be possible only if no other statutory steps can be taken to reclaim an overpayment. External commentators have recognised that that is an area of law that would benefit from clarification. The proposed changes have been exposed informally to external stakeholders, who responded positively to them.
Amendment 71 would widen the scope for taxpayers to make claims still further by relaxing the restrictions relating to matters that the claimant could have appealed. However, taxpayers are already entitled to make a late appeal if they have a reasonable excuse for not having appealed within the normal time limit. The tribunal also has discretion to permit a late appeal when it is fair and reasonable to do so, and HMRC has discretion to allow late claims, elections and notices when appropriate, and to give full effect to the consequences of the claim. The amendment would enable taxpayers to reopen a matter that could have been dealt with on appeal, when they do not have a reasonable excuse for failing to appeal in time and when the tribunal does not consider it fair and reasonable to allow a late appeal. The amendment goes too far and would compromise the effectiveness of the appeal process as a means of determining disputes, so I ask the hon. Gentleman to withdraw it.
I note the Exchequer Secretarys comments on the appeal process when a taxpayer has a reasonable excuse. That provides some comfort, but there is concern with such a testwe have seen it elsewherethat it may leave the unadvised, least sophisticated taxpayer in a difficult position. I am sure that the Government and HMRC are aware of that, and that it is a legitimate concern to raise. I accept the point about the practical difficulties if the exclusion were widened too much, and I beg to ask leave to withdraw the amendment.
I want to highlight two other areas where the commissioners are not liable to give effect to claims. One is paragraph 2(6) of new schedule 1AB to the Taxes Management Act 1970, which is another occasion when the ought reasonably to have known test applies. The other is paragraph 2(7), which requires a little clarity, and refers to case F, which
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
(b) in accordance with an agreement between the claimant and
settling such proceedings.
I think that seeks to prevent claims from being made when HMRC has begun proceedings to recover tax debtsfor example, when tax was due under self-assessment. We have been advised that that is likely to have quite a wide effect, and that quite a large number of taxpayers will be excluded as a consequence of the provision. I should be grateful to hear from the Minister whether that interpretation is correct, and whether this is quite a significant carve-out.
As I said, the schedule changes the error or mistake rules for repayment of overpaid income tax, capital gains tax and corporation tax. Error or mistake relief is intended to provide a final opportunity for taxpayers to reclaim overpaid tax. The changes modernise the system and simplify the recovery of overpaid income tax, capital gains tax and corporation tax. The provisions widen the relief, and the requirement that the tax must have been paid on the assessment as a result of a mistake on a return is removed. Claims will not be possible unless there are no other statutory steps that can be taken to reclaim an overpayment. Taxpayers safeguards are improved, and aligned more closely with the indirect tax error correction provisions, which cuts burdens for taxpayers and HMRC.
After a transitional period to enable claims to be made under the previous regime, the changes will apply to claims made on or after 1 April 2010 and repayment claims will be subject to the ordinary four-year time limit. As I said earlier, the proposed changes have been exposed informally to external stakeholders, who responded positively.
The hon. Member for South-West Hertfordshire asked a specific question that I do not have the answer to, but I am more than happy to write to him.