This piece first appeared in Saga Magazine in November 2010
The text here may not be identical to the published text  

Tax gets really taxing

Tax fiasco and how to fight it

Nearly one and a half million people are being asked to pay more tax because the Revenue took too little from their pay or pension in the last two tax years. The minimum amount demanded is £300 (anything less than that is being written off) and the average is around £1,400. The letters – headed P800 – are already going out and the whole exercise should be done by Christmas.

Anyone can be affected but mistakes are more likely if you have more than one source of income. Perhaps you have a pension and a part-time job, more than one part-time job, or several small pensions. The Revenue can also make mistakes when you stop work, start claiming a pension or reach 65 or 75.

Tax experts believe that customers who are asked for more tax may be able to avoid paying it. The rules are complex – and to a certain extent at the discretion of the Revenue. But if you believe you fulfil the criteria then you should ask the Revenue to stop chasing you for the tax it failed to collect.

Concession
We are all obliged to tell the Revenue about changes in our financial circumstances. That includes leaving work and claiming a pension or pensions from your previous jobs, taking up a new part-time job, or beginning self-employment. If you give the Revenue the information but it fails to act on it and continues to deduct too little tax then you can argue it is not your fault that you have all the tax due and can ask for the tax to be written off – the Revenue calls it ‘giving up’ the tax – so you don’t have to pay it.  The rules are set down in what is called Extra-Statutory Concession A19.

You must pass three tests

1. You told the Revenue about every job, pension or other source of income that you have and you gave any employer the necessary forms such as a P45.

2. The Revenue did not make use of this information by the end of the tax year after the tax year in which it got the information. So if you told the Revenue about a change in 2008/09 it had to use that information to work out the tax due by the end of 2009/10. So it is now too late for the Revenue to ask for 2008/09 tax if you fulfil the other conditions. The Revenue is in time to collect tax for 2009/10. However, you can argue for that to be written off too (under the Exceptional Circumstances rule) if the Revenue has failed to make use of at least two separate pieces of information and has allowed two years of tax arrears to build up. If the tax you owe is just for 2009/10 you will almost certainly not be able to use this concession to get it written off.

3. You had a reasonable belief that your tax affairs were in order. Believing it is not enough; your belief has to be reasonable. Evidence for that could include the fact that you read any letters sent to you by HM Revenue & Customs and did not see anything on them that struck you as wrong and as far as you were concerned the Revenue had correctly assessed your tax.

If those three tests are passed then you can then ask for the tax to be ‘given up’ for 2008/09 under Extra-Statutory Concession A19 and possibly for 2009/10 using the Exceptional Circumstances rule. Documents sent to some tax advisers indicate that the Revenue is more likely to be sympathetic to customers who get pensions than younger ones who are in well paid jobs.

While your claim under A19 is being considered the Revenue should not recover any of the extra tax. If your claim under A19 fails then you have the right for the decision to be checked by another, more senior tax officer. If that fails then you have to you appeal to the Revenue Adjudicator or contact your MP and complain to the Parliamentary Ombudsman on grounds of maladministration.

If you have to pay
If you lose your claim under A19 – or you think you probably should pay the tax – then amounts below £2000 will normally be collected by increasing the tax deducted from your pay or pension for the tax year that starts in April 2011. But if deducting it over twelve months would cause hardship – and the average payment will be nearly £120 a month – then you can ask the Revenue to spread the collection over three years. No interest is charged in these cases. The Revenue will be more sympathetic if you have a limited income and the tax demanded is large compared with it.

If the amount is £2,000 or more, you will be asked for the arrears at once. If you do nothing you will be sent a self-assessment form after eight weeks and have to pay in full three months and a week after that. However, if you ask for more time on grounds of hardship in that first eight weeks you can arrange to pay it over a longer period of up to three years. You can either pay a monthly amount or reduce the debt to below £2000 and have the rest taken direct from your pay or pension.

Refunds
Most people who get a letter about the wrong tax being collected will get good news. More than four million people will be told the Revenue has deducted too much tax and they will be getting a refund. A few weeks later a cheque will arrive in the post. The average amount will be just over £400. If you get a means-tested benefit such as pension credit, council tax benefit, or housing benefit that amount will not count as income but it will be added to your capital and may reduce the amount of benefit you get. All refunds will be notified and sent by post. HMRC will never send an email or a text message about a refund and you should ignore and destroy any such message. They are being sent out by scammers trying to get hold of your bank details.

Mistakes
These extraordinary mistakes – £2 billion underpaid and £1.8 billion overpaid – are all part of the Pay As You Earn (PAYE) system which allows Her Majesty’s Revenue & Customs to help itself to the tax we owe by getting employers or pension providers to deduct it from our pay or pensions before the money is paid to us. It is a very efficient way of collecting tax. But it is not a good way of assessing it. It works best with people who have one company pension and no job. But it often gets things wrong for people who have several pensions, or a pension and a job, or several part-time jobs. It also goes wrong when these things change.

And there are more problems on the way. Millions of the 2010/11 tax codes telling employers how much tax to deduct were wrong. And there is still a legacy of errors from 2007/08 and earlier which have yet to be dealt with.

FURTHER INFORMATION
More about P800 – www.hmrc.gov.uk/p800/paye-tax-calcs.htm
Extra statutory concession A19 – www.hmrc.gov.uk/esc/esc.htm
Tax help for older people – www.taxvol.org.uk – 0845 601 3321

 

 


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