Assessments, Appeals, Distress and Refunds

September 2006

77.59 Assessments [note 1]

HMRC are able to make a determination of the tax and Class 4 NIC (see paragraph 77.41) due in the absence of a return, which is not open to appeal as it is treated as the taxpayers own self assessment until it is replaced by an actual self assessment. The normal time limit for making a determination is five years from the filing date of the return and the taxpayers own self assessment return must be submitted within that time, or within twelve months of the date of the determination if that is later.

With some limited exceptions, HMRC will only issue assessments themselves if they discover that tax has been underpaid due to negligent or fraudulent conduct on the part of the taxpayer, or because of the inadequate disclosure of information, and the appeal procedure does apply to such an assessment. Where the additional assessment is on the basis of inadequate information without an allegation that the taxpayer is at fault the normal time limits of five years from the filing date of the return apply, but where HMRC can show fraudulent or negligent conduct, assessments may be made at any time up to twenty years after the tax year or accounting period concerned.

HMRC also have the power to enquire into a return at any point in the twelve month period after the date the return is filed, and as a result of the enquiry may make amendments to the amount of tax payable.

Notification of the amount of inheritance tax due is contained in a notice of determination issued by HMRC. Adjustments for tax underpaid or overpaid, plus interest, may be made subsequently but not later than 6 years from the date of payment, or, if later, from the date payment was due. In cases of fraud or negligent conduct, the 6 year period begins from the date that HMRC became aware of the fraud etc.

77.60 Appeals [note 2]

Usually appeals must be made within 30 days after the date of issue of the assessment or an amendment to a taxpayer’s self assessment to tax. HMRC may allow late appeals if satisfied there was good reason for the delay. The appeal must state the grounds on which it is made. The tax must still be paid even if an appeal has been lodged.

However, in respect of income tax, corporation tax and capital gains tax, application may be made to postpone payment of all or part of the disputed tax. The postponement application is separate from the appeal and must state the amount of tax which is considered to have been overcharged and the grounds for that belief. The amount postponed will be agreed with the inspector or decided by the Appeal Commissioners. Any tax not postponed will be due 30 days after the date of the decision as to postponement or on the normal due date, if later.

The appeal itself may be settled by negotiation with the inspector. If an appeal is not settled in this way, it is listed for a hearing by the Appeal Commissioners, either the General Commissioners or the Special Commissioners. Certain specialised appeals are heard by the Special Commissioners and other appeals are normally heard by the General Commissioners, and there are provisions for the transfer of proceedings between the two bodies of Commissioners. Appeals before the General Commissioners are heard in private. Appeals before the Special Commissioners are usually heard in public (unless the taxpayer or HMRC ask for a private hearing ). Selected decisions of the Special Commissioners are published in various law reports. The decisions of the Commissioners on matters of fact are normally binding on both parties.

If the taxpayer or HMRC are dissatisfied with a decision on a point of law, appeal may be made to the High Court, the Court of Appeal and thereafter if leave is granted to the House of Lords.

77.61 Distress

HMRC's power of distress applies to income tax, capital gains tax and corporation tax [note 3] as well as to interest on tax [note 4]. It is extended to PAYE deductions [note5], NIC deductions [note6] and in respect of tax payable by contractors [note7].

Before distress can lawfully be levied, there must be both a demand for tax and a neglect or refusal to pay [note8]. The demand required is the application for the payment of tax which must be served at the last place of abode of a taxpayer or his/her place of business [note9]. In respect of a company HMRC will normally send notice to the company’s place of business, although it may be sent to the registered office if this is the only address they have on file.

It is HMRC's practice that normally a tax demand is followed by a special letter outlining its powers of distraint, and after a further interval a personal visit is made to levy distress. Distress is only levied upon the goods and chattels of the person from whom the tax is due.

Where HMRC have levied distress on goods before a bankruptcy or winding up order is made, the following applies (subject to section 128 in the case of a company):

If the distress is completed ( i.e. by sale) 3 months before the date of the bankruptcy or winding up order HMRC will retain enough of the proceeds to satisfy the amount owed.

If the sale of goods is within 3 months immediately preceding the date of the date of the bankruptcy or winding up order the goods or proceeds of sale will be subject to the provisions of section 176(2) or 347(3).

  • If the distress is complete (i.e. the goods are sold) HMRC, on request of the trustee or liquidator will surrender the sale proceeds to be applied in payment of preferential debts, provided there are insufficient funds or other assets to satisfy the preferential debts by other means. In this event HMRC, as regards that part of its debt which is preferential, will prove as a preferential creditor and in any event (in accordance with section 176(3) or section 347(4)) will become a preferential creditor to the extent of the proceeds of the distress. It should be noted that although EA2002 abolishes Crown preference so that HMRC will not generally have preferential status in relation to outstanding taxes, the right to preferential status in respect of a debt where goods have been distrained on as outlined here remains unaffected.
  • If the distress is incomplete (i.e. the goods have not been sold), HMRC, on request of the trustee or liquidator and upon receipt of an undertaking will give up possession of the distrained goods. Any surplus of sale proceeds, after payment of the preferential debts, will be applied in payment of any non preferential tax included in the distress. HMRC, as distrainor will become a preferential creditor in the sum of the sale proceeds. In the absence of such a request by the trustee or liquidator, HMRC will sell the goods whilst accepting that the provisions of sections 176 or 347 may apply.

On the making of a bankruptcy order, HMRC will not normally levy distress on a bankrupt's assets despite being entitled to do so [note 10]. An exception may be made if other creditors entitled to distrain after the making of the order were doing so to HMRC's detriment. See also Chapter 9 - Part 1 Action against the property of the insolvent.

77.62 Refunds and set-off

(amended January 2014)

Where there has been an overpayment of tax HMRC will usually check that there are no other Crown debts against which the overpayment can be set off. See also Chapter 40 Part 7 - Creditors and liabilities.

All bankrupts are requested to complete and sign the Tax and National Insurance disclosure form [note 11] (see also paragraph 77.22) which authorises the payment to the official receiver (or trustee) of any income tax refunds payable for any year up to and including the tax year in which the bankruptcy order was made to the bankrupt’s estate. HMRC will automatically offer the refund to the official receiver or other trustee appointed. The official receiver must respond to the offer and forward a copy of the tax disclosure form [note 11] in order to claim the refund. The letter claiming the refund should be sent by post but the signed disclosure form (in Word or pdf format) should be sent separately to the HMRC email account    

See also paragraph 77.23 for information on how the official receiver may claim extra income that the bankrupt may be in receipt of due to an NT code issued as a result of the bankruptcy order.


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