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Compensation for HMRC errors

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!



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By pembo
14th Oct 2010 15:09


We had 68 of those this week nearly all of which were wrong for one reason or another....think this is  deliberate policy based on the principal that if just 1 or 2 pay up just to get shot of HMRC its a good result...

Be nice to think we could get £6800 out of this but frankly its not worth the hassle...just accept HMRC are crap and move on...if we did this every time HMRCs "computer" messed up I would be answering this from the balcony of my luxury villa in the Seychelles...the ones where we do go after compensation are more subjective and usually enquiry or more substantive issues and then yes bill the client they pay you and then they get compensated...assuming you want to go through the headbanging process of complaint and proof etc.

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14th Oct 2010 16:38

There have been previous replies on this

In brief the method suggested was

Bill the client

Collect and hold chq from client (so can say client has paid)

Write to HMRC on clients behalf claiming compensation for additional cost incured by client.

When client recieves payment from HMRC bank clients cheque.


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