Last week, I wrote the first part of a twoparter on the HM Revenue & Customs’ PAYE blunder, expressing the view that the numbers potentially affected made it important that financial advisers were at least conversant with the problem and, even better , were able to discuss, in principle at least , what could be done by those detrimentally affected. I ended last week’s column with the question (in relation to the PAYE blunder) – what should people being asked for the extra tax do before paying it?
The first thing to do is to check that the demand is, in fact correct. Next, even if the amount is correct, is HMRC actually entitled to recover the tax?
The rules are that HMRC must issue demands for underpaid tax within 12 months of the end of the tax year in which it became aware that people had underpaid.
So if a taxpayer provided HMRC with all the information they needed to get his or her tax code right, HMRC should have used this information within 12 months of the end of the tax year in which it was received to claw back the extra money.
If HMRC failed to do this, taxpayers can ask for Extra-Statutory Concession A19 to apply. It is worth quoting its details in full.
A19: Extra-Statutory Concession Giving up tax where there are Revenue delays in sing information
Arrears of income tax or capital gains tax may be given up if they result from the Inland Revenue’s failure to make proper and timely use of information supplied by:
- a taxpayer about his or her own income, gains or personal circumstances;
- an employer, where the information affects a taxpayer’s coding; or]
- the Department for Work and Pensions, about a taxpayer’s State retirement, disability or widow’s pension.
Tax will normally be given up only where the taxpayer:
- could reasonably have believed that his or her tax affairs were in order; and
- was notified of the arrears more than 12 months after the end of the tax year in which the Revenue received the information indicating that more tax was due, or was notified of an over-repayment made after the end of the tax year following the year in which the repayment was made.
In exceptional circumstances, arrears of tax notified 12 months or less after the end of the relevant tax year may be given up if the Revenue:
- failed more than once to make proper use of the facts they had been given about one source of income
- allowed the arrears to build up over two whole tax years in succession by failing to make proper and timely use of information they had been given”.
The latest round of errors date back to April 2008, meaning anyone who provided HMRC with all the relevant information that affected their tax code before the start of the new tax year in April 2009 may be able to rely on the concession.
When claiming the concession, it will be necessary to provide the following information:
- which tax year and underpayment the claim relates to
- what information HMRC failed to make proper and timely use of and any supporting information
- what date this information was provided
- reason(s) why the taxpayer thought his or her tax affairs were in order prior to receiving the tax demand.
The Low Income Tax Reform Group has published draft standard response letters, depending on the circumstances, including one claiming the A19 concession. They can be found on its website.
In addition to the above, HMRC is facing fresh accusations of incompetence after it emerged that its system cannot deal with the new 50p rate of income tax.
When the new rate for high-earners (called the additional rate) took effect from April 6, it apparently failed to issue a new PAYE code to some of those affected, namely those with more than one job and whose combined income takes them over the £150,000 threshold for the new top rate.
A bulletin for employers on HMRC’s website recently stated: “Because we do not currently have an appropriate 50 per cent tax code to apply to second or multiple employments, if you have employees, directors or pensioners with multiple sources of income, then their tax deductions may not be accurate when their various incomes are combined and they become liable to tax at 50 per cent.’
For people in this category the unpaid tax will have to be recovered when the individuals concerned complete their self-assessment forms by January 31, 2012.