Q. Last year I remember a great deal of publicity surrounding H M Revenue & Customs (HMRC) and the issuing of demands to taxpayers due to errors in PAYE codings and the incorrect or late use of information. I have just received a tax calculation for the tax year 2010/11. a form P800, showing that I owe arrears of tax including an amount brought forward for earlier years! What should I be doing to check this and in particular the tax shown as unpaid in earlier years as I don’t know how this figure has been calculated?
A. Yes you are correct last summer HMRC had to deal with their departments failing over the previous two years and look to collect millions in unpaid tax as the country could only wait in dread to see if they would be one of those people affected by disaster. Over 1.4 million brown envelopes landed on the door mats of British taxpayers demanding payment of tax arrears.
As a result of the very unpopular and well publicised action taken last summer HMRC “caught up” its back log of processing information and issuing calculations. The problem had arisen in part due to HMRC’s having various computerised systems that could not collate the information into one central record. This lead to incorrect PAYE coding notices being operated resulting in either underpayments, or in some case overpayments of tax
Those most likely to receive demands were people with more than one source of earnings or pension and employees who receive benefits in kind such as company cars from their employers.
The calculation you have received is for the 2010/11 tax year (the tax year 6 April 2010 to 5 April 2011) and is part of the of HMRC’s annual review of individual taxpayers liability. At the end of each tax year, employers and pension providers send details of the salary, pension, benefits in kind and tax paid for each individual to HMRC. They use this information to check that the correct amount of tax has been deducted. It was this process in earlier years that had not been correctly carried out by HMRC.
You should check the figures shown on the calculation against your 2010/11 P60 and P11D both of which should have already been provided to you by your employer. With regards to tax show as unpaid from earlier years you should already have previously received a calculation showing how this figure was arrived at. If not or you cant find this to check it then contact HMRC and ask them to provide a copy of the calculation and/or go through it with you over the phone. The telephone number to ring will be shown on the calculation you have just received.
For those whose calculations on form P800 show they have paid too much tax HMRC we will automatically send you a cheque within 14 working days of the date on your P800 Tax Calculation.
If the calculation shows you have underpaid tax, HMRC will usually automatically collect any underpayment through your tax code in 12 monthly instalments over the next tax year, commencing on 6 April 2012. This is of course dependant on you having enough PAYE income from a continuing employment or UK based pension.
If paying the amount over a year through your tax coding would cause financial difficulty, HMRC may be able to spread the payments over two or three years. If you need to discuss payment options you can contact HMRC on 0845 3000 627.
If you make an arrangement with HMRC to pay back the tax that you owe, we will not charge interest on this amount. If you choose not to contact HMRC, they will ask for payment of the full amount on which interest could become due.
In any case were the underpayment calculated is £3,000 or more HMRC will contact you about how to pay. If you are one of those who does receive a demand there is little to do to avoid payment if it is correct. If however you think that HMRC should have already collected the tax shown to be underpaid in your P800 Tax Calculation because the information had already been provided to us either by yourself, employer, or a third party, and we have failed or delayed to use this information in a correct and timely manner, then in some limited circumstances HMRC may agree not to collect it.
Firstly you will need to consider if you and/or your employer has supplied all the relevant information to HMRC and within the correct time limits to enable them to assess your tax liability and issue correct notices of coding.
If you have done this then you may be able to claim that HMRC have made an “official error” in not using the appropriate information that had been supplied to them in a timely fashion by either yourself or your employer. Extra Statutory Concession A19, until the last years debacle a little known loop hole, entitles you to request HMRC to remit 100% of the tax debt if you can prove they have failed to use information provided in an appropriate and timely fashion.
However be warned, HMRC’s spokesmen have previously warned that they will vigorously challenge any claims under ESC A19 and will only concede to those that meet the full requirement of the concession. If you think this may apply to you then you can contact HMRC using the address on the P800 Tax Calculation or by calling 0845 3000 627.