Labour plans to make it harder to claim back tax

Labour is planning to cut the amount of time workers have to reclaim overpaid National Insurance by a third. Taxpayers usually have six years to demand that overpayments of NI be returned. But HM Revenue & Customs (HMRC) wants to reduce this period to four years, in line with the income tax deadline. At the same time, it wants to extend the time it is allowed to pursue unpaid NI contributions (NICs) from six to 20 years. The potential tightening of the rules has emerged days before John Healey’s first Budget , at which the Chancellor is expected to unveil revenue-raising measures to fill a £4.7bn black hole in defence spending. HMRC has already announced plans to take money directly from the accounts of taxpayers who owe more than £1,000. And it emerged at the weekend that HMRC had sent hundreds of letters to wealthy people requesting extensive details about their properties, trusts and companies. Previously, the taxman usually asked only for information on income and earnings. The planned reduction in the reclaiming deadline from six to four years has been floated in an HMRC consultation document. ‘Ordinary people paying the price’ Andrew Griffith, the shadow chancellor, said: “Labour are scrambling around for cash ahead of the Budget, and ordinary taxpayers are being made to pay the price. “This is another example of a Government that is always looking for ways to take money from the public, but makes no effort to make life easier for the people paying the bills. “Labour’s plans risk leaving ordinary people out of pocket through no fault of their own. That is fundamentally unfair. They should focus instead on making HMRC more accountable, simplifying and lowering taxes so we can get our economy moving.” At present, refunds can be claimed for six years from the end of the tax year in which the NICs were scheduled to be paid. A claim for 2020-21, which ended on April 5 2021, can be made until April 5 2027 under the six-year rule. Under a four-year rule, the earliest year for which a claim could be made this autumn would be 2022-23. HMRC wants to align the time limits for recovery of NICs with those for income tax, which are laid out in a piece of legislation called the Taxes Management Act (TMA). The consultation states: “We also propose to align the time limit for repaying NICs paid in error with the time limits given in the TMA. “This means that HMRC will only repay contributions paid in error on application for up to four years instead of six. “Whilst this is a reduction of two years, four years is the standard time frame given by the TMA and we believe that this is a sufficient period of time and should not disadvantage people.” No details on cost to households The document does not estimate how much this would cost households, saying this will be “assessed in detail and set out in further advice following consultation”. “We believe our proposals will not change adversely the position for the vast majority of customers who have fulfilled their responsibilities (other than reducing the number of years for which contributions paid in error can be reclaimed) but will streamline the processes,” the document says. The document also includes no transitional protection for claims that are in time under the present rules. The Association of Taxation Technicians called for the six-year deadline to be maintained. “We recommended transitional protection so that existing repayment rights are not lost, together with a statutory relief mechanism comparable to income tax overpayment relief for appropriate late claims,” it said. A spokesman for HMRC said: “These proposals are intended to simplify National Insurance by aligning its recovery and repayment rules with those already used for income tax. “No decisions have been taken and we’re carefully reviewing responses to the consultation to ensure any decisions made are proportionate and workable.”