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Six year clampdown
The Government will legislate to ensure that the limitation period for the recovery of direct tax paid by mistake of law is six years from the date of payment. This is to ensure consistency with the limitation period for making claims in respect of direct taxes paid under assessment as a result of a mistake in a tax return, as specified in TMA 1970, s 33 and FA 1998, Sch 18 para 51. This follows a recent House of Lords decision in Deutsche Morgan Grenfell Group plc v CIR and another which confirmed that the taxpayer could recover tax payments going back more than six years. HM Treasury says that taking no action would risk unwarranted transfers from taxpayers in general to the current shareholders of certain claimant companies.
The provision will have retrospective effect, but will not disturb the entitlement of those who have secured what amounts to a final judgment in their favour prior to 6 December 2006.
This announcement is not particularly surprising, since the judgment opened up an expensive can of worms and another case, Group Litigation Order (concerning alleged discriminatory taxation of dividends paid by European companies to UK companies), shortly to be heard by the European Court of Justice could also cost the Treasury billions of pounds if the decision goes against the UK. As Ruth Dooley of Grant Thornton says, 'the Treasury has bitten the bullet and decided that it cannot stomach the cost of potentially losing this case'. She adds that it is 'unprecedented' to legislate at this stage and is not so much 'moving the goalposts, as refusing to come out for the second half of the game'.
CIS tax rates
The pre-Budget report confirms that the new construction industry scheme will be introduced on 6 April 2007. The standard deduction rate will be 20%, rising from 18%, and the higher deduction rate remains at 30%. Increasing the standard deduction rate to 20% could cause some subcontractors cashflow problems. Grant Thornton's Mike Warburton says that 'lower paid construction workers could be in a position of suffering tax at source and having to reclaim tax at a later date'.
