Coding out of tax underpayments
As a practice we have recently seen a few cases where clients underpayments in their tax codes have been removed by HMRC and replaced on their statement of account with one month to pay.
In these cases HMRC have said that there is not enough income from which to collect the tax owing but this is not always correct.
In the latest case, we have had a letter back from HMRC stating "I am unable to code out the underpayment as requested as the PAYE system will not allow me to code out underpayments that would double your client's liability under PAYE". They then suggest our client (owing c£600) contacts Debt Management for time to pay.
Firstly, I do not understand HMRC's position here - is what they are saying correct?
Secondly, whilst all this is going on our client is being chased for the debt and (as she was worried) did ring HMRC to see if she could pay by instalments and they refused - this despite them originally coding out the tax owing (as they have done in the past) and then removing it!
I'm bewildered and frustrated (as usual when dealing with HMRC) and not quite sure what to say to the client next apart from arguing further with HMRC that if they don't reinstate the underpayment in the code that they must give her time to pay.
Any thoughts/advice please?