In July 2003, in the case Deutsche Morgan Grenfell Group Plc v. The Commissioners of Inland Revenue and HM Attorney General, the High Court ruled that, although the Limitation Act 1980 prevents an action founded on tort or on simple contract being brought after a period of six years counting from the date when the cause of the action occurred, in the case of an action based on the consequences of a mistake, the six-year limitation period applies from the discovery of the mistake. (See Newsletters of 12 September 2003 and 21 November 2003)

The implications of that decision were that

• an overpayment due to a mistake could be discovered many years in the future and an action taken to recover the overpayment within six years of that discovery, and
  
  
• current understanding of tax law could be overturned by a court decision at some time in the future, leaving it open for taxpayers to argue that their payments made under the previous understanding were made under a mistake of law and therefore recoverable.

Because that decision would have left tax revenues vulnerable to repayment claims prompted by (currently) unknown changes of tax law in future, the Government restricted the application of the Limitation Act 1980 by provisions included in the Finance Act 2004 (s.320) so that the six-year time limit counting from the discovery of the error does not apply to a mistake of law relating to a taxation matter. This change applies only to claims made on or after 20th November 2003.

Despite the removal of the vulnerability to tax revenues, the Inland Revenue appealed the High Court's ruling. The decision of the Court of Appeal was issued on 4 February 2005. Although it was not a majority decision, the High Court's decision was upheld to the extent that it allowed overpayments of tax made within six years of the discovery of the mistake to be recovered from the Inland Revenue. This recovery is not prevented by the later change in the application of the Limitation Act 1980 as it preceded the application date.

The result does not therefore affect the overall effect of the change in legislation. Taxpayers, individuals or companies continue to be able to claim reimbursement of overpaid tax within six years (five years in Scotland) counting from the time the tax was paid. However, in the case of an overpayment of tax, the six years does not count from the date on which the mistake was discovered.

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...back to 25 February 2005

Source:
courtservice.gov.uk