HMRC lottery: The brown envelope arrives

The letter box sounds, the post has arrived with the unsightly brown envelope from HMRC proudly sitting on the doormat, says Simon Boxall head of personal tax at Ward Williams.

Sheer panic, or optimistic excitement – what’s inside? A PAYE coding notice (the fifth one in so many weeks); an unexpected tax calculation (P800) for an earlier year (how can I possibly owe any tax); or the pleasant surprise of a tax refund?

So, can we the taxpayer, trust and rely upon the information presented before us by HMRC? Sadly the answer is no. My own experience has found that around one in four tax codes are incorrect, particularly for taxpayers with multiple incomes, company benefits and for those who are higher earners. Such errors can lead to shock tax bills for taxpayers whom generally believe that their affairs are in order. After all, your income has been subjected to PAYE so surely you have nothing to worry about?

HMRC will argue that PAYE is not intended to collect the ‘right’ amount of tax during the year; it is merely a system in place in an ‘attempt’ to recover the correct amount of tax, followed by an end of year review to tidy matters up where necessary. This sweeping up process is known as the end of year reconciliation or in layman’s terms, sorting out the affairs of taxpayers who have been charged the wrong amount of tax.

This leads me on to the controversial end of year tax calculations, or for those more familiar with this process, the circus that is the ‘Form P800’. HMRC has already started the reconciliation of PAYE records for the 2011/12 tax year. HMRC says that for 2011/12 up to 3.5 million taxpayers will receive an average tax rebate of £379, while up to 1.6 million taxpayers will be issued with a tax demand on average of some £537. Given the issues surrounding the large number of incorrect forms P800 that were sent out last year (for years 2007/08 to 2009/10) - a topic hotly debated in the media - what can we expect of the forms P800 this time round?  

An increasing number of new clients, who approach us for our services arrive with issues surrounding their tax codes. I was approached last year by a new client who had been issued with forms P800 for years 2008/09 and 2009/10, as his tax codes for those years had got it horribly wrong. In this case, as part of the PAYE reconciliation process HMRC had identified that there were arrears of tax of some £18,000, which as you can imagine came as a bit of a shock to the taxpayer.  Now, while the tax demand was correct, following our appeal the client was delighted to learn that HMRC agreed to write the tax off, for a number of reasons.  A lesson to be learnt – do not just accept that HMRC has got it right!

Do not fret – you can call HMRC to discuss your affairs, so long as you have the patience to wait six minutes on average to speak to HMRC, a statistic provided by the Freedom of Information Act.

For the unrepresented taxpayer, the tax world can be a heavy burden, as after all, it is your responsibility as the taxpayer to ensure that you are paying the correct amount of tax. A complex tax system and a collecting agent (HMRC) who cannot be relied upon make this burden ever so slightly tougher.

Will you receive the brown envelope? What is inside? Are you a winner or loser under the HMRC lottery? 

 

Simon Boxall is the head of personal tax at Ward Williams Chartered Accountants.

Comments

HMRC Lottery

monksview | | Permalink

What has greatly annoyed me lately is the number fo clients that have received a repayment on the back of an assessment issued by an HMRC that has looked purely at one employment.  Ignoring the fact that there are other sources of income and a return is done every year.  Bunch of morons.  And I'm not just talking about the operatives, but those that set up the IT.  They obviously did not have enough knowledge of the tax system before they were let lose and presumably were paid a vast sum of money to bring the HMRC systems into the 21st century.  Well done!

Raising false hopes

sammerchant | | Permalink

A client of mine who submits Form R40 each year and receives a refund of the tax deducted on her interest income, received a Form P800T (tax calculation) showing interest income of some £1,500 with the tax deducted equal to the gross interest, i.e. a rate of 100%. The form, of which received a copy indicated that a refund for the overpaid tax was on its way to her. I contacted HMRC on the number shown, and, after all the ID procedures etc, I managed to get them to agree to withdraw the P800T and await the R40.

I have advised my client to bank the cheque and wait for HMRC to demand the money back. The whole exercise, phoning HMRC, my client etc took about 35 minutes. What a stupid waste of my time and theirs. Meanwhile my client is utterly bemused with the goings-on.

Better luck than me... so far!

markabacus | | Permalink

I was approached by a tax payer [client referral] in Dec 11. He had demands for tax re 07/08, 08/09 & 09/10 issued Feb 11 & 10/11 issued Jan 12. He'd written to HMRC re the first 3 under A19 but had failed to get them cancelled.

Not being a large practice I rang our Tech support co. to be sure as it seemed obvious to me. Subsequent letters to HMRC including the last one to the Complaints Team who took FOUR months to reply, they still maintain the tax is due.

First HMRC claimed they didn't know about his Military pension and NHS job despite having rec'd them since 2001.

When I pointed out the tax codes issued back then showed both so how cld they claim that, they claimed the taxpayer shd have advised them and EOY P14's does not count as notification of circumstances. Seems little point in file them then! The taxpayer presumed he was paying the right tax under PAYE as they kept changing his codings. He didn't know that the codings were wrong. Why shd he, he's a male nurse at a high security prison.

Therefore they say A19 does not apply and HMRC therefore have 4 yrs to assess and therefore all tax is due.

Interestingly having said A19 doesn't apply when they make reference to 10/11 assessment they advise this is due as it was within the time limits of A19. Really! How is this relevant if A19 doesn't apply?

Oh well, onwards and upwards. I keep reading the stories of this type of Saga so I'm not on my own.

 

Claims refused for spurious reasons

Jimess | | Permalink

HMRC have just refused one of my clients the A19 concession where incorrect codings had been issued despite HMRC having everything they needed at the right time to issue them correctly.  The A19 was refused on the grounds that my client had "telephoned HMRC and spoken to one of their advisers and therefore understood her tax matters!".  According to my client when she telephoned HMRC she had not actually discussed the PAYE codings, but had spoken to a member of the collections team who advised her to take further advice if she thought the tax was wrong! 

My client is elderly and easily confused, and came to me in tears because she was worried sick about the fact that she had received letters from the tax collector. She did not understand at all why the tax liability had arisen.  The client in question has little income, but three small pensions on top of her SP, hence the coding confusion.  They have all been in place for a number of years, but for some strange reason the SP was eliminated from the main coding in 2009/10. Clearly a case of someone at HMRC not checking back on their work, resulting in one very worried pensioner who has never had dealings with HMRC apart from receiving coding notices etc in her life and I am now spending precious hours of most likely unpaid time to help sort it out.

A19 concessions

monksview | | Permalink

You should both make your next move a threat to go to your local MP and the newspapers, and be willing to go through with it.  They think they can get away with anything.

MP, newspapers threat

markabacus | | Permalink

I rang Bootle office [Complaints] this afternoon and spoke to the officer who wrote declining. Despite making further points all he kept saying was they had 4 yrs to assess in. P14's are not qualifying doc'ts, even when I pointed out they reg'ns re issuing paye codings shd be done only after assessing if there is any tax due from earlier years which they clearly haven't done.

Another excuse was the new system introduced in Jul 09 which did auto reconciliations. I pointed out it still took 18 mths to issue the assessments.

It wld seem their incompetence in issuing codes that do not correctly deal with his position [NHS salary and military pension] is ok but the tax payer not realising they owe tax is the tax payers fault even though he presumed the codings were dealing with it!

Well no surprise there

I said I wld speak to my client for instructions but anticipate a letter to the Adjudicators office or his MP or both.

Water of a duck's back I think summarises his response

 

I'm sure everyone will

JamieG | | Permalink

I'm sure everyone will approach a letter from HMRC on their doormat with some trepidation - one of the current issues for contractors are IR35 letters. HMRC are clamping down on IR35 inquiries: this guide explains what to do if you receive one: http://www.qdosconsulting.com/qdos/news/2012/06/20/new-ir35-letters-our-...

The private lotteries where

Seryvinam Venak | | Permalink

The private lotteries where the sale of tickets is confined to members of a society, persons on the society's premises, persons who all work on the same premises, or persons who all live on the same premises.           

Eurochance100

 

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