Is there a special time limit on AIA claims?

Making and correcting mistakes

Anyone can make a mistake and it’s especially easy to trip up when tackling something as tricky as tax. The good news is that HMRC doesn’t, or at least shouldn’t, penalise you for mistakes which cause you to pay too little tax as long as they occurred despite you taking reasonable care. However, when correcting errors which resulted in you paying too much tax there’s a different set of rules and deadlines to consider.

Correcting errors

For personal and company tax returns (with one or two exceptions) you have one year from the deadline for submitting the tax return in which to amend it for any reason; whether because of a mistake or you simply want to change a claim. This is called the amendment window. After that a special claim is needed if you made a mistake in your tax return which caused your tax bill to be too high. This is called overpayment relief.

Overpayment relief time limit

The deadline for overpayment relief claims for companies is four years from the end of the accounting period for which the correction is required. For individuals and partnerships the four years runs from the end of the tax year. For example, for an error in your company’s tax return for its corporation tax (CT) period ended 31 March 2022, you have until 31 March 2026 to make a claim.

Overpayment relief can’t be used to extend the deadline beyond the normal deadline for claiming it. Most tax reliefs and deductions have a four-year time limit and so overpayment relief works well enough, but the deadline for claiming capital allowances (CAs) for purchases of plant, machinery etc. for a particular tax year, including a claim for the annual investment allowance (AIA), is two years after the end of the accounting period (or tax year for individuals and partnerships). So, if a company’s accounting period ended on 31 March 2022, CAs for that period must be claimed by 31 March 2024, i.e. in line with the amendment window for tax returns.

Belated capital allowances

It might appear that this trap means that if you fail to claim CAs within the amendment window, tax relief is lost forever but that’s not so. However, if you miss the two-year amendment window you won’t get tax relief for the year you originally wanted it. For example, if you failed to claim CAs in your company’s CT return for the period ended 31 March 2020 you have until 31 March 2023 to claim them for the year ended 31 March 2021. The bad news is this delay will cost you.

Expenditure that qualifies for CAs, but which has not been reflected in previous tax returns or accounts, can be added to those for later years and CAs claimed. In effect there is no time limit for claiming expenditure on equipment etc.

The sting in the tail of claiming CAs outside the amendment window is that not only does it mean you won’t get the relief for the tax year you originally wanted it, but you’ll have completely lost the chance to claim the AIA. This means instead of receiving tax relief on the full cost of equipment etc. in the financial/tax year it was purchased you’ll only be entitled to claim the writing down allowance, which is either 6% or 18% of the purchase cost per year of the reducing balance.