Under current rules taxpayers generally have up to five years and ten months, after a particular tax year, to correct errors and make claims that may have been overlooked. Similarly, except when there is fraud or neglect, HM Revenue & Customs (HMRC) can only raise assessments for outstanding tax for a period of six years after the year in question. Buried deep in the Finance Bill are proposals to reduce and align these limits to only four years in both cases.

Where there has been “fraudulent or negligent conduct” under the current rules HMRC can raise assessment for up to twenty years. The proposals are that where there is a “loss of tax brought about carelessly” the limit will be reduced to six years but will remain at twenty years where this is “deliberate”

Whilst the general shortening of the time limits are welcome the Low Income Tax Reform Group has picked up on the point that there are many cases where HMRC have been “careless” with a taxpayer’s affairs and will have six years to recover any tax. However HMRC will only make repayments going back four years.

The proposals are due to be debated in Parliament in the coming weeks and, if they remain unchanged, will form part of the Finance Act which should receive Royal Assent later this summer. The rule changes will come into effect once the Treasury issue the relevant Statutory Instrument which could be soon after Royal Assent.

This means that any outstanding claims for the tax year 2002/2003 and 2003/2004 which are currently “in-date” will become “out of date” overnight (unless some transitional rules are also introduced). Such claims might include:

• Age related personal allowances (including married couple’s allowance)
• Blind person’s allowances
• Pension contributions
• Qualifying loan interest
• Capital losses.

If there are any outstanding claims for these years it would be prudent to consider these sooner rather than later.

There is one situation where the proposal is to increase the time limit. In the case where someone dies HMRC currently only have three years and ten months after the year of death to raise an assessment and this will be extended to four years.

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An announcement has been widely expected and commented on in this and other blogs (see SME blog) following on from the Revenue’s defeat in the House of Lords. This is a case of the dog that didn’t bark or at least not yet….

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It was reported yesterday The Observer , and in both The Guardian and The Independent today that The TUC has joined the campaign to abolish the current tax rules for those resident but not domiciled in the UK.

The Sunday Times on the other hand ran a report about a poll that suggested that “two people in every five are either planning to move abroad or have seriously considered doing so”.

Maybe the new Chancellor will touch on this in his first Pre-Budget report next month.

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An article by Vannessa Houlder in the FT this morning has sparked further debate on the question of Domicile for UK tax purposes.  This was picked up by

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You may recall that earlier this week Cathy Corns, Corporate Tax Partner at Mercer & Hole wrote an article on the Jones v Garnett case for her SME Blog.  Following on from this piece Cathy has submitted an additional blog on the topical "Arctic Systems Ltd" case.

The House of Lords issued their judgement in the case of Jones v Garnett (also known as the “Arctic Systems Ltd” case) on 25 July 2007. To much rejoicing the case was decided in favour of Mr and Mrs Jones. However, the Revenue is a bad loser.

On 26 July a written Ministerial statement was issued by the Exchequer Secretary to the Treasury, announcing the intention to change the law.

Using the standard “the Government is committed to maintaining fairness in the tax system” statement the Government now believes it needs to do something to “ensure that there is greater clarity in the law regarding its position on the tax treatment of income splitting”. Actually, in my opinion, the law is now clear – it may not say what the Revenue wants it to, but that is unfortunate (for them) rather than unclear.

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Cathy Corns, Corporate Tax Partner at Mercer & Hole wrote this article for her SME Blog earlier today.

This all seems to have been going on for so long you may need reminding of what all the fuss is about; so 

 - Mr and Mrs Jones ran a small IT company of which Mr Jones was the sole director. They each owned one share in the company took a small salary and extracted the majority of their required funds by way of dividend. These, of course, were paid in line with the shareholdings, on a 50:50 basis.

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