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Another section 29 question

A neighbour (really) made a royal mess of his 2009/10 tax return, overstating schedule E income and more importantly overstating tax deducted at source.  The errors appear to stem mainly from him misreading his P60, which had been printed out of alignment with the stationery.  On receiving his return, HMRC issued a refund for the difference between the tax deducted at source on his return less the tax actually deducted at source.  Neighbour received the refund without appreciating what it was for.  In fact his standard tax code exactly covered his liability for the year (but not tax due from the previous year - see below).

I have to confess that personal tax isn't my cup of tea, but I did say I would look at it for him.  Having gone through the numbers I agree that he did get a repayment when he shouldn't have and also that, because they accepted the figures on his return, HMRC failed to demand another £1,000 that they claim had been coded out from 2008/09 into 2009/10 (although neighbour and his employer have no knowledge of a notice of coding for this).  Neighbour is now unemployed and doesn't have the funds to make the repayment and pay the tax from 2008/09.  My instinct is that he should pay it, but I feel I ought to also check that he is required to pay it.

Looking at schedule 29, HMRC need to rely, I believe, on either s.29(4) [fraudulent or negligent conduct] or s.29(5) [officer couldn't be expected to be aware of the need for assessment].  As the assessment relates solely to schedule E income and in particular to tax deducted at source for which HMRC had full details, presumably HMRC cannot now argue a case for s.29(5), which leaves fraud or negligence.  Have I got this right, and do people here feel HMRC have grounds for claiming negligence?

Next question: HMRC have written that they intend to charge a penalty for failure to take reasonable care.  Are there grounds for challenging this?

Final question: Ignoring section 29 for now, presumably HMRC are able to reclaim the over-repayment [repayment made in 2010/11; this correspondence started in 2011/12].  Is this correct?

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Establish what the 2008/09 underpayment relates to
I would try and trace through the sequence of events relating to the 2008/09 amount that HMRC claim was coded. If it was actually for 2008/09 I would have expected it to be in the 2010/11 code number not 2009/10, but if your neighbour does his tax retuns early HMRC might have slipped that one in. What did the £1000 underpayment relate to? Was it something that HMRC had not acted on in reasonable time. Despite the fact that your client submits tax returns HMRC still had knowledge of the employment income data through P60, P11d (if relevant) and notices of coding. If any of these had not been used by HMRC to correctly establish the relevant PAYE codings and raise assessments at the correct times then there is a possibilty that your neighbour may have grounds to claim relief for official error, depending on the precise circumstances. I would do a lot more digging before giving in to HMRC and before accepting any penalties are due, particularly in view of your neighbours reduced circumstances. The HMRC PAYE system has not been linking through to the SA system therefore we have seen a lot of assessments that have been raised in error because HMRC have ignored the SA return completely and raised an assessment taking into account the PAYE income only. If your neighbour is currently on benefit or on low income it might be worth suggesting that your neighbour contacts Taxaid, particularly if HMRC are threatening to raise penalties.

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Replying to Jimess

Thanks for the help so far.  You are quite right that the coding adjustment related to a 2007/08 amount and not a 2008/09 amount.  I can't figure out how the underpayment for 2007/08 arose.  He changed jobs towards the end of that year from a job with car to a job without car.  The car benefit was fully reflected in his tax code the previous year, so I would have expected the job change to result in an overpayment of tax, if anything.  

The following year (2008/09) it looks like his tax code reflected a company car, even though he hadn't had no longer had one, and then on 2009/10 it reverts to a standard tax code.  I'm guessing that somewhere along the line he changed jobs using a P46.  

What I would like is for HMRC to send me details of all notices of coding issued since April 2007.  Is this something they are likely to do for me?

I was interested in your comment that HMRC have been ignoring the SA return figures and assessing solely on PAYE returns.  If only they had done this here we wouldn't be in this mess. 

 

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It is always worth asking.  You will need to ensure that you have a 64-8 in place or have the client sitting next to you to verbally instruct HMRC to speak to you if you call them.  We have had varied responses from the helpline staff - some are not aware how far back they can go, but they should be able to tell you what was included in the codings for each year and the dates that they were changed.  If there were underpayments rolled forward in the codings and the new employer used the emergency tax code on a week one basis there would possibly have been an undercollection.  If there are underpayments in the codings you need to find out what has caused the underpayments in the first place.  We have seen may cases of HMRC totally ignoring forms P46(car), P11d and raising estimated underpayments to be collected from code numbers based on data that was several years old.

It is always a bit tricky when there has been changes of employment during the tax year, particularly in the period that you are looking at which is generally speaking the tax years that HMRC did not get reconciled prior to the wholesale migration of the data from old system to new.  What then happened is that all of a sudden people were getting codings for employers they no longer worked for, were having benefits coded in that no longer existed, or not coded at all.  The switchover was a complete shambles.

I hope you get the information you need. 

Kind regards

 

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