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Overpaid tax is your money and if you want it back then time is not on your side

Tom Maguire

You’ve overpaid tax. So what and what now? Refunds of overpaid tax are available once you make the necessary claim on time. Missing the deadline means your cash is gone. When you pay tax, you give your hard earned to the Exchequer so it seems somewhat unjust that there should be a timeline on getting your cash back. It’s one thing to give a loan of your overpaid tax to the Exchequer (generally without interest) but having that loan written off for you and not by you, that’s something else.

I mention this because there have been around twelve failed cases before the Tax Appeals Commission looking for tax repayments after the deadline expired. In one case, the taxpayer didn’t want the cash back but rather preferred that it be set off against other tax liabilities and that was denied as well. Let that sink in for a second.

Generally, a claim for a tax refund must be made within four years of the end of the tax year to which the claim relates (i.e. the so-called “4-year rule”). The law says that a repayment of tax “shall” not be made unless that rule is adhered to. Put another way, the law adopts the approach of Star Trek’s Captain Jean-Luc Picard when he issued the “Make it so” order. Whenever he said that in the sci-fi show things just happened and so it is with the law; when it says “shall” certain things have to happen. Therefore, the Appeal Commissioner couldn’t go rogue on the law and allow the appeals.

Certain taxpayers may not have known they were due a repayment until after that 4-year period expired because e.g. they weren’t aware of some tax relief they could have claimed. In short, they didn’t know what they didn’t know until it was too late. Many of the abovementioned Commissioners’ decisions say that the law does not provide for “extenuating” circumstances, which could mitigate the 4-year rule.

In one instance, the taxpayer accepted that he hadn’t made the claim within the required 4 year period but explained that he had a young family and that the sum of money at issue was extremely significant to him. The amount was around €3,000. Denied.

In another instance, a taxpayer retired in 2011. He was issued with a form P45 on his departure from employment. The taxpayer said he believed that the amount of tax he had paid in respect of that year was correct. He thought he had no outstanding tax liability for that tax year and so assumed that he wasn’t obliged to file a tax return for 2011. Although the decision doesn’t go into more detail he filed a tax return outside the 4 year rule looking for a refund. The amount was around €1,800. Denied.

A final example relates to mortgage interest relief which was not given to taxpayer due to the relevant house being designated a rental property in error. The taxpayer explained that she suffered illness in 2007 and was unwell in subsequent years. She stated that the loss of mortgage interest relief in respect of the years 2007-2011 represented a substantial loss of income to her. She had two school age kids and said that the condition of the property was adverse to her health. She continued that if she were to receive the relief for the above years then she would be able to make positive changes to her living environment. Denied. Because the claim was made outside the 4-year rule.

To be clear all of the above decisions of the Commissioners were given on a redacted basis so the taxpayer’s identities were protected. Other claims seen by the Tax Appeals Commission included matters such as PAYE credits, medical expenses, and so on. All of them: Denied. Because of the 4-year rule.

In one instance the taxpayer put the matter succinctly that in her view “to apply the arbitrary cut-off point of 4 years is extremely unjust and is preventing me from experiencing what is my entitlement”. You can see her point. Indeed the law had been changed a number of years ago: For claims made on or before 31 December 2004 the time limit for making such claims was ten years, not four. Right now, the law says that a refund claim made after four years is dead in the water no matter what and it’s that “no matter what” point which needs to be addressed.

To be fair, the reasoning behind the four-year time limit is understandable. The Exchequer has to protect its resources and cannot entertain refund claims going all the way back to Adam and Eve. Certainty, to the extent that it can be achieved, is a necessity in running any business, let alone a sovereign nation. However, Revenue can go back further than 4 years where they suspect fraud or neglect has been committed in paying tax and so as I’ve written in these pages previously, why not have a quid pro quo relaxation of the time limits in cases of taxpayer hardship and extenuating circumstances? Fair’s fair.

Granted, that would make for subjective law but from a taxpayer’s perspective, isn’t that better than an objective ‘no’ where hardship and other extenuating factors prevail? Isn’t it better from a policy perspective to show that Ireland doesn’t go beyond what’s necessary to protect the Exchequer to the detriment of others? Proportionality matters.

Separately if such “extenuating circumstances law” had been enacted before now then there may have been twelve less cases before the Tax Appeals Commission. That matters. Right now, there are three commissioners, two permanent and one temporary and their caseload is nothing short of huge. Anything that cuts down that load warrants attention and if that means a law change then we should “make it so”. Let’s be clear this extenuating circumstances law should be just that so the effect on the Exchequer should be minimised.

Bottom line, if you have a tax repayment claim to make, then make it on time, because it’s your cash to be used, not lost.

Tom Maguire is a tax partner with Deloitte and his fortnightly columns on tax matters appear in the Sunday Independent. The above article was first published on 24th February 2019.

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