Compensation for HMRC errors

One of my clients has just received a £400 penalty notice for not filing a P35. They chuck these letters around like confetti at this time of year and a high percentage of them are always wrong. Needless to say he was not very pleased. The tone of his e-mail was distinctly stroppy. Thing is, I DID file his PAYE returns on time and have the confirmation e-mail from HMRC to prove it, dated 9 May. And it wasn't a test transmission. Also, looking at his PAYE record on the HMRC system, it confirms that they were submitted on 9 May.

I want compensation for this but as I understand it you can only claim for additional fees charged to your client as a result of their errors. I presume they then make the refund direct to the client and you have to bill them. So I will need to write (as his agent) with a copy of my invoice. Four questions here:

1) What is the procedure? Is a simple letter to the originating tax office sufficient?

2) What is the going rate? I was thinking £100 plus VAT (as the input tax is technically irrecoverable).

3) Can my client make an additional claim for "distress" caused by their error? I believe that's the magic word you have to use. If so, how much is realistic in a case like this?

4) How could this have happened? Why didn't their confirmation of submission "close" the PAYE account? 

Shame I can't claim anything for my own distress after getting his e-mail. I see they don't send these letters to agents but only advise taxpayers to show them the notice. If they had sent it to me first I could have told them it was wrong. My client wants to keep 50% of the £100 fee as his share, but perhaps I can get 50% of his claim for distress if it is successful!

Chris

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Chris Smail |
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