Understanding Overpayment Relief: What You Need to Know in 2025

Overpayment relief is one of the more obscure yet critical components of the UK’s tax system. It is particularly important for taxpayers who file complex self-assessment returns or deal with legacy tax issues. Mainstream attention in 2024 focused on HMRC’s campaign targeting undeclared income from side hustles. However, another issue that continues to create confusion, disputes, and missed opportunities is overpayment relief.

This mechanism provides a route for taxpayers to recover tax they believe was paid in error. It applies even after the standard time limits for amending returns have passed. In contrast to normal amendments under self-assessment rules, overpayment relief is not available in all circumstances. The requirements for a successful claim are strict.

In this guide, we’ll explain what overpayment relief is, the legal framework underpinning it, and key eligibility conditions. We will include recent case law examples and how to approach it practically. This will help you to avoid common pitfalls.

What Is Overpayment Relief?

Overpayment relief allows taxpayers to reclaim tax that has been overpaid due to a mistake. This includes errors in a tax return or another assessment issued by HMRC. It was introduced under Schedule 1AB of the Taxes Management Act (TMA) 1970. This replaced the former “error or mistake relief,” which was widely used but often inconsistently applied. Overpayment relief was brought in from 1 April 2010 to provide a more uniform set of conditions and time limits.

It’s worth noting that this is not a general mechanism to claim back any overpaid tax. HMRC structured the relief to prevent misuse. It is not meant as a “get out of jail free card” for missed deadlines or poor compliance.

Time Limits: When Can You Claim?

Time is one of the most critical factors in making a successful overpayment relief claim.

Standard Amendment Window

Under the self-assessment system, individuals normally have 12 months from the statutory filing deadline to amend a tax return. For example, if your 2023/24 return is due by 31 January 2025, you would have until 31 January 2026 to amend it.

Overpayment Relief Timeframe

If the 12-month window has closed, overpayment relief may still be an option. However, this is only within a four-year time limit from the end of the tax year to which the overpayment relates. This is shorter than the previous six-year period allowed under the former error or mistake regime.

So, if you discover in 2025 that you overpaid tax in the 2020/21 tax year, the deadline to make a claim would be 5 April 2025.

This four-year deadline is strict. If your claim is late, it will be rejected, even if you would otherwise qualify.

Who Can Claim Overpayment Relief?

Overpayment relief applies to both individuals and companies. It can be used in a variety of circumstances—but only if very specific conditions are met.

Permitted Scenarios Include:

• Mistake in a claim or calculation: For example, where you incorrectly computed capital gains tax or loss relief, and this resulted in tax being overpaid.
• Excessive assessments: If HMRC issued a determination or assessment that turns out to be legally excessive (e.g., based on incorrect assumptions or information you provided), a claim may be permitted.
• No right of appeal used: If you didn’t have an opportunity to appeal at the time of the original error, this could potentially justify a claim—but if you had appeal rights and chose not to exercise them, your claim will likely be rejected.

Restrictions: When You Can’t Use Overpayment Relief

This relief is not a catch-all and is explicitly limited by statutory exclusions. These exclusions are designed to preserve the integrity of time limits. Additionally, they prevent repeated re-litigation of tax matters.

Key Disqualifiers Include:

1. Failure to act in time: If you could have fixed the mistake by amending your return within the normal window but failed to do so, you usually can’t rely on overpayment relief.

2. Settled tribunal decisions: If you’ve taken the issue to a tribunal or had the opportunity to do so and didn’t, you’re barred from using overpayment relief to reopen the case.

3. Prevailing practice defence: If the tax return followed HMRC’s published guidance or prevailing practice at the time, you won’t be able to make a claim—even if subsequent guidance changed.

4. Negligence or careless claims: If the original mistake was due to negligence or a lack of reasonable care, relief may be denied. The system rewards diligent taxpayers who took care, not those who were careless.

What Does NOT Count as a Claim Mistake?

One important nuance is that not all overpayments qualify for relief. If a taxpayer received standard tax reliefs or allowances (e.g., personal allowance or savings income exemptions), and the overpayment arises from automatic application or assumptions by HMRC, this will not necessarily be considered a “mistake in a claim.”

Overpayment relief is meant for actual errors or excessive assessments, not for changes of mind or re-interpretations of law. It applies to claims that were reasonably made at the time.

Case Law: Key Examples from Recent Tribunal Decisions

Two recent tribunal cases provide a deeper understanding of how HMRC and the courts interpret overpayment relief claims.

BTR Core Fund v HMRC (2024)

In this case, the taxpayer attempted to reclaim overpaid Stamp Duty Land Tax (SDLT) after HMRC changed its interpretation of Multiple Dwellings Relief (MDR). The taxpayer had submitted an original claim that, due to incorrect calculations, underclaimed relief.

When they later attempted to correct the error via overpayment relief, HMRC rejected the claim. The argument was that it was simply a miscalculation that should have been fixed during the amendment window. The tribunal agreed.

Outcome: HMRC won. Overpayment relief cannot be used to correct basic errors in computations when the normal amendment route was available but not used.

Candy v HMRC (2025)

In a contrasting outcome, this case involved a taxpayer who purchased property in 2012 and overpaid SDLT. Due to missing the 12-month amendment deadline, he sought overpayment relief instead. HMRC initially denied the claim, but the tribunal ruled that since he had no realistic way of correcting the error via normal procedures, the relief should be granted.

Outcome: Taxpayer won. The tribunal accepted that overpayment relief was appropriate. This was given that the taxpayer had no opportunity to fix the overpayment under regular self-assessment rules.

Practical Considerations: What You Should Do

Making a successful overpayment relief claim requires more than just pointing out an overpayment. You need to meet every condition in the legislation. Additionally, support your claim with relevant facts, documents, and timelines.

Here are key steps to follow:

1. Be Aware of the Time Limits

The four-year window is absolute. Missing it by even one day can invalidate your claim. Start reviewing any possible overpayments well before the deadline.

2. Keep Clear Records of All Tax Filings and Correspondence

Tribunal cases often turn on the availability of supporting evidence. Retain copies of:

• Tax returns and computations
• Correspondence with HMRC
• Professional advice received
• Legal rulings that may affect your claim

3. Don’t Use Overpayment Relief as a Substitute for Filing on Time

It’s not designed as a “safety net” for those who failed to meet original deadlines. You’re expected to exercise reasonable care. Use normal channels before resorting to overpayment relief.

4. Get Professional Advice Early

Given the complexity, working with a tax adviser or accountant experienced in contentious claims can significantly improve your chances of success. An adviser can also help distinguish between a valid error and one that HMRC is likely to reject under statutory exclusions.

Final Thoughts

Overpayment relief can be a powerful tool—but it’s also a tightly controlled one. It exists to correct real overpayments made in good faith under specific conditions. It does not allow indefinite reopening of past returns. If you think you may have overpaid tax outside the normal amendment window, act quickly and carefully.

Know the rules, document your claim well, and seek help early. Done right, overpayment relief can offer a fair resolution for genuine errors that would otherwise remain uncorrected.

In short, overpayment relief offers an important opportunity for taxpayers to correct mistakes, but it comes with strict time limits and conditions. Case law has shown that overpayment relief isn’t always available if you’ve missed your filing deadlines, but it can provide much-needed relief when circumstances are complex or when the initial claim was made in good faith.

If you’re unsure whether you qualify for overpayment relief or have a specific situation involving an old tax return, get in touch with Merranti Accounting for expert advice and guidance.