Changes introduced by the Finance Act 2008 to the time limits for claims and elections come into effect on 1 April 2010

How will the reduction from a six year to a four year deadline, for claims and elections, affect individuals and businesses?

What were the original rules?
The original rules in respect of claims and elections make provisions for two year and 'six' year claims. For most 'six' year claims, individuals had to claim within five years after 31 January, following the end of the relevant tax year. For capital gains tax, in some cases, reference is made to a relevant event and the time limit would be within six years from that date, or in some instances, for companies within six years from the end of the accounting period in which a payment was made or a gain was accrued.

What has changed?
Finance Act 2008 made amendments to the time limits changing a number of six year claims to four years across all taxes. The new time limits are effective from 1 April 2010.

Which claims will be affected for individuals?
This means that affected claims for 2003/2004 tax year can be made until 31 January 2010. However, claims for the 2004/2005 tax year must be made (under transitional rules) before 1 April 2010 and claims for 2005/06 tax year will have to be made by the new deadline of four years after the end of the tax year which will be 5 April 2010. The following are some of the claims which will be subject to the new four year time limit and should be considered in advance of 31 March 2010:

• Capital losses
• Roll-over relief where gain can be 'rolled' into the base costs of a new business asset - the acquisition can be from 12 months before to three years after the disposal, or longer if HM Revenue and Customs (HMRC) allow
• Joint claim by the transferor and the transferee (or transferor only if transfer into settlement) for relief from tax on chargeable gains on gifts by individuals of business assets or agricultural property
• Claim for roll-over relief in respect of receipt of certain capital sums such as compensation and insurance money used within 12 months of receipt in replacing the asset
• Joint claim by transferor and transferee (or by transferor alone if transfer is into a settlement) for hold-over relief to apply on gifts on which inheritance tax is chargeable

What are the claims which need to be considered for companies?
If we consider a company with a 31 December year end, the time limit for many claims, for the year ended 31 December 2003 will be 31 December 2009. However, the time limits for claims for 31 December 2004 will be 31 March 2010, under transitional rules, and the time limit for claims for 31 December 2005 will be 31 December 2010.

This means that companies will need to consider a greater number of claims in quick succession in the move towards four year claims. Further complications can be caused where the accounting reference date is changed which increases the risk that the deadline will be missed as it will not fall on the anniversary of the new accounting period. Examples of claims affected include:

• Claim for roll-over relief in respect of receipt of certain capital sums for instance compensation and insurance money used at any time in restoring the asset
• Claim for relief in respect of an enforced contingent liability
• Roll-over relief where gain can be 'rolled' into the base costs of a new business asset - the acquisition can be from 12 months before to three years after the disposal, or longer if HMRC allow
• Joint claim by group members for roll-over relief on the replacement of assets in one company by acquisition in another
• Claim for roll-over relief on acquisition of new land in order to defer capital gain on certain compulsory purchases
• Claim for relief in respect of delayed remittances of gains from disposal of foreign assets

Mike Warburton, Director at Grant Thornton says: "The changes introduced by the Finance Act 2008 in respect of the claims and election time limits seem straight forward but it is something that can be easily missed, especially with a number of claims falling in close succession as we move to the shorter time limit. All returns and transactions should be reviewed for the three tax years in question to ensure all relevant claims and elections have been correctly made."

contact us if you would like further advice on any of the above.