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ANY ANSWERS ANSWERED: When is a mistake not a mistake?

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25th May 2006
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Sorting out errors that arise from a client's previous tax returns can often cause problems. But when does a mistake qualify for relief. Nichola Ross Martin explains.

Everyone makes errors or mistakes from time to time, but 'mistakes' are not always what they seem. This creates a problem for accountants and taxpayers. For an accountant, trying to explain why something is not what it seems can adversly affect accountant-client relationships.

S.33 TMA 1970 provides relief when a person believes he has been overcharged by a tax assessment by reason of some error or mistake in a return. This section allows for claims out of the normal return repair time.

When is a mistake treated as a mistake?
The expression 'error or mistake' in s.33 covers errors and mistakes in tax returns which lead to excessive assessment to tax. S.33 is a remedy to correct the problem and ensure that you are taxed fairly. The types of mistakes and errors which can be remedied are:

  • errors of omission such as the non-deduction of an expense;
  • errors of 'commission', such as computational or arithmetical errors; and
  • errors arising from a misunderstanding of the law, as well as erroneous statements of fact.
  • The section specifically states that you cannot make a claim for mistake relief if:

  • prevailing tax or accountancy practice has changed after the event. For example, where a court case reverses an earlier held view. In that instance, the return would have been completed following the law as it stood then.li>
  • Where someone deliberately made a claim on a return, and then changed their mind. A common example concerns a claim for capital allowances.

    A recent Any Answers problem illustrates another example of the latter:
    'A' was an employee who went into a partnership, which made a loss in its first year. The accountant advised a loss claim under s.381 to carry back his loss against his former employment income. In the second year the partnership made a big profit, and all things considered least tax would have been paid if the accountant had revoked the loss claim in the first return within the statutory time limit. The trouble was that there was a change of advisors and so the s.381 was not revoked in time.
    HMRC response to an error or mistake claim was 'This was a deliberate choice and so there can be no error or mistake'. In short you cannot change your mind where you have deliberately made a claim in a return.

    This is one of those examples where there does seem to have been an error or mistake, but HMRC are correct, it is not the right type of error or mistake for s.33 to apply, it is simply 'the wrong sort of mistake'. The error seems to have occurred due to lack of advice, the true cause of which is unknown. The taxpayer needs to find a remedy by looking in another direction, and this will involve discussing the matter with the advisor who failed to spot the error and negotiating some form of compensation, if it is actually applicable.

    Nichola Ross Martin

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    By listerramjet
    26th May 2006 15:35

    the law is a what?
    I have to admit I get annoyed when I see examples of the executive hiding such loutish behaviour behind the excuse of "its the law".

    On the otherhand, if HMRC think we really are customers then perhaps they should honour their customer charter?

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