HMRC acting illegally re: removing overpayments from the record?

HMRC acting illegally re: removing overpayments...

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This isn't so much a question as a warning to practitioners and I feel something that warrants national press attention, though I could do with some opinion on what to do next.

We all know about P35 overpayments from 2012/13 and HMRC's new stance on not revealing them on the phone unless you specifically ask about them, or refusing to repay them until you come up with a reason that satisfies them etc, but this one takes the biscuit and in my opinion, may be illegal.

A client overpaid PAYE/NI for 2012/13 because the old accountant advised the wrong amount of PAYE for a couple of months. We wrote back to their standard letter in August and explained this very thing, and confirmed that the figures were correct in all respects.

Because we'd had lord knows how many letters like this from HMRC asking for "reasons" and then prevaricating and delaying such repayments, in that letter we stated that having fully explained ourselves, we would not enter into protracted correspondence such as other cases and told them to reallocate the overpayment against 13/14 and that we had told our client to reduce their next payment accordingly.

We heard nothing further from HMRC (though they say they wrote in September asking for more info but that "we may not have received the letter"). We didn't which is suspicious.

However here's the crux - it turns out HMRC deliberately removed the overpayment from 12/13 by filing a proforma P35 which increased the tax and NI. I believe they didn't issue any notification to that effect.

As a result, my client began to get harassed by Debt Management units who despite us explaining what had happened, actually said to us on the telephone that they would continue chasing our client regardless. This has upset her considerably.

A formal complaint went in and here's the shocker - they've come back to me and I quote directly:

"As a temporary measure to protect the unjustified overpayment from being reallocated...by another HMRC department...we captured a pro-forma P35 on 5th August 2013 whilst issuing final further information letter to you".

At this point I challenge this as I'm, fairly sure that no letter went out, though they themselves said only "a request for further information" went out - not notice of alteration of figures. Either way, we didn't receive it.

They continue:

"Please note there is no statutory authority that permits HMRC to prepare a pro-forma P35, this is our internal procedure to protect the unjustified overpayment and a pro-forma P35 does not permanently remove the overpayment".

Given the P35 went in during April, and they still had removed the overpayment at 16th December when they capitulated and processed my complaint, I would say it was very much permanently removed - especially as they admit that the final information letter says "if you don't respond then we'll leave the payment on the record". I would also say that "there is no statutory authority that permits HMRC to prepare a pro-forma P35" means "we have acted illegally and beyond our powers".

What do people make of this? We're well used to overpayment reticence with HMRC, but I feel this oversteps the mark and I'm not sure what to do next. Can I file a Money laundering report against HMRC, as I feel this is very much proceeds of crime! Either way, if HMRC are openly removing overpayments and clients are not receiving letters saying so, this to me implies that HMRC internal procedure is basically covering up and preventing the repayment of taxpayer's money.

Replies (5)

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By johngroganjga
20th Dec 2013 11:47

I share your disgust.  If I

I share your disgust.  If I were dealing with this as you are I would escalate my complaint to the highest level including the client's MP - and yes perhaps a MLR report.  Although you may get satisfaction from making a MLR report it is unlikely to produce any practical benefit for your client - it will probably be ignored - and of course you can't threaten HMRC with doing it, or tell them you have done it, as that would be tipping off.  I rather think you can't tell your client about it either.

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By adam.arca
20th Dec 2013 12:24

Completely agree

I completely agree that submitting a pro forma P35 which has no basis in fact is not just a step too far but a country mile beyond what is acceptable. We don't know why the Revenue felt this was an "unjustified" overpayment (do you?) but I would think we can all agree that making up figures to conveniently wipe out an apparent overpayment is fraud. It is when Joe Bloggs the supplier does it to ABC his customer, and I can't see any reason why it isn't when the Revenue do it (and even have the gall to admit they've done it).

Interestingly, on the side issue of letters which the Revenue say they have issued but which you / the client haven't received, I'm currently corresponding with the Revenue on a P35 overpayment case of my own where this has happened. I'm currently dealing with their complaints team who have been very helpful so far to be fair, but it does seem possibly a bit more than coincidental that "letters" of explanation have apparently gone missing in both your case and mine.

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Replying to Mark Telford:
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By norstar
20th Dec 2013 12:39

Unjustified?

This is where Accountingweb holds value - nice to see similar cases.

Firstly, I should point out they've now agreed it was fully justified - as they always do in the end, but I assume what they mean is that until the overpayment has been "audited" and your explanation satisfies the most skeptical HMRC office, it is classed as "unjustified" and thus must be removed to prevent accidental repayment of your money.

This is my concern. It clearly isn't temporary if a) there's no notice issued to say they've done it and b) where the only other letter that goes out (allegedly) asks for further info, but states that if it isn't forthcoming, they'll just leave the record untouched (having been very much touched by HMRC!).

That means that their system is now geared up to firstly remove people's overpayments, send out a letter that you may or may not get, and then if nothing comes back, leave that dodgy pro forma P35 in place, thus squirrelling away the overpayment that doesn't belong to them.

That is systemic and calculated in my opinion.

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Stepurhan
By stepurhan
20th Dec 2013 13:01

Not accidentally paid

That is the weakest justification I have ever heard for doing something. Is it really beyond the HMRC systems to do what many accounting systems are capable of and mark an item as "disputed". That should be enough to prevent it being "accidentally" paid. To instead remove it entirely is just plain wrong.

That is even before questioning HMRC's justification for considering the refund disputed in the first place. Their records show a refund due, why should taxpayers have to jump through hoops to prove those records are right?

"There is no statutory authority that permits" means exactly the same as "This is an illegal action". Were this not already resolved, I would be sending them a very sternly worded letter stating that if they did not rectify this and make payment immediately I would be instructing a solicitor.

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By mhtax
20th Dec 2013 19:53

Preventative flag always been available

Stepurhan is right - I am sure many of us have chased refunds, only to find that they had forgotten to remove the flag inhibiting repayment which is triggered when an enquiry is underway. As I understand it the flag applies to all taxes the taxpayer is involved in.

Creating spurious liabilities but continuing to threaten recoevery action is beyond belief - especially as in the new tax year they will be raising charges in respect of enforcement actions taken in the same way as bailiffs etc do.

And how more justified can an overpayment be? I paid the figure my accountant instructed should be instantly accepted.

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