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Huge Tax Bill

HMRC Bo Bo?

Didn't find your answer?

New client waiting for HMRC code to authorise and previous accountant not replying

2020 Tax Return submitted by previous accountant in January, tax due £53.76

HMRC have amended with the following:

Client is 75 and similar income for last 10 years

 

Profit from self-employment           £1.061

Dividends from Uk                           £1,004

UK Pension                                     £14,930

Total income                                    £16,996

Less personal Allowance               (£12,500)

Taxable                                              £4,495

 

Basic rate                                                                                     £698.20

Dividends                                                                                           0.00

Underpaid tax for earlier year in tax code 19/20                      £59,340.60

Income Tax due                                                                          £60,038.80

Tax from Pension                                                                          (£644.44)

Now due                                                                                        £59,394.36

Plus they want payments on account for £29,697.18

Replies (38)

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A Putey FACA
By Arthur Putey
11th Mar 2021 16:33

Rishi needs the money to put food in the troughs (sorry on the tables) of needy management consultants

Thanks (3)
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By Paul Crowley
11th Mar 2021 16:41

HMRC love operating Digital tax stuff
It must be right if it is digital
this definitely must be part of the tax gap that MTD was meant to find

Well done HMRC

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By I'msorryIhaven'taclue
11th Mar 2021 16:49

It makes you wonder whether the outgoing accountant had a hand in that uplift.

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
11th Mar 2021 16:53

Result is client will not leave that accountant again

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Replying to Paul Crowley:
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By Cazzie B
11th Mar 2021 16:56

From what we know it appears this accountant has left all his clients, and not done the work, filed conformation statements in Jan/Feb to stop companies being struck off but not done accounts etc

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Replying to I'msorryIhaven'taclue:
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By Cazzie B
11th Mar 2021 16:53

Someone else in the office thought that, but how would he do that?

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Replying to Cazzie B:
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By I'msorryIhaven'taclue
11th Mar 2021 17:07

He (the outgoing accountant) might have only recently filed tax returns for the earlier year(s). Either replacements, or because none were filed in the first place. The client's 75, we're told, so HMRC might well have written years ago to say stop sending returns.

He (the elderly client) is self employed, btw; so no Cos House submissions necessary.

Thanks (1)
Replying to I'msorryIhaven'taclue:
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By I'msorryIhaven'taclue
11th Mar 2021 17:38

And following a recount, during which I had to remove my socks, the penny's dropped that this client was born circa 1946; and so would have qualified for age allowance up until its demise at the end of season 2014-15.

So I guess HMRC are taxing him from 2015-16 onwards?

EDIT: Pre 2015-16 as well, in all probability. What I was driving at is that there could well have been a time when his age allowance covered his pension and meagre other income.

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By janewanless
11th Mar 2021 17:04

£59k of underpayment can't be coded from a £14k pension ( as we're assuming no significant changes in income levels). So this looks wrong.

Have HMRC tried to code a current year underpayment in March 2020 and this has resulted in a huge adjustment (as only one month's income left), which they've then included in SA as an earlier year coded amount? I know they're not supposed to do that, but they did have an error like this a few years ago, which they corrected if you phoned to query the coded underpayment adjustment.

Has something similar happened again?

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Replying to janewanless:
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By Paul Crowley
11th Mar 2021 17:34

Well
HMRC is in fact a computer algorithm
This coding passed all HMRC algorithm logic checks
Client should expect a bang on the door from collection agents fairly soon

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Replying to janewanless:
RLI
By lionofludesch
11th Mar 2021 17:46

janewanless wrote:

£59k of underpayment can't be coded from a £14k pension ....

What happened to the £3,000 limit for coding out ? When did it rocket to £60,000?

Thanks (2)
Replying to janewanless:
RLI
By lionofludesch
12th Mar 2021 07:18

janewanless wrote:

£59k of underpayment can't be coded from a £14k pension ( as we're assuming no significant changes in income levels). So this looks wrong.

Worth pointing out here that £9k of that £14k will probably be his state pension so that leaves an optimistic £59k to be recovered from £5k.

It's nonsense and so disappointing that HMRC standards have plumbed such depths that tripe like this can ever leave their office.

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Replying to janewanless:
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By richard thomas
12th Mar 2021 10:53

I do not think that an in-year adjustment (IYA) can be the answer. Assuming the same levels of income in 19-20, what could HMRC have found out about that would cause an IYA? The possibilities are that self-employment was a new source on registration, that dividends were newly received or that state pension was not being taxed by a coding adjustment. I think the latter highly unlikely.

So if HMRC were coding out the self-employment or the dividends (and overlooked the dividend allowance) I do not see how that could possibly lead to an underpayment of £60k. An IYA is in any event designed to avoid an underpayment not cause it, and could not cause a 19/20 coding adjustment of c60k.

Has the OP checked the client's PTA which should give a coding history?

My guess is that something has gone seriously wrong. Either it's the result of wrong figures being keyed into an online return for an earlier year to give a huge income figure, or the beloved HMRC computer has thrown a very large wobbly.

As to janewanless' point about the coding limit, it is still £3,000. And if there was in reality a huge amount of income just come to light, it could not have been coded out but should have been reflected in the SA calculation for 19/20.

There is an odd thing about the OP too. It is said that HMRC "amended" the SA calculation. They cannot amend it, only the taxpayer can. HMRC may correct it for "obvious errors or omissions" and "anything else in the return" the officer has information to suggest is wrong - this is the only thing they could have legally done. What could have been omitted from the return or been an obvious error?

The thing to do then is to reject the correction under s 9ZB(4) TMA. The time limit is 30 days from the issue of the notice of correction.

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Replying to richard thomas:
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By Cazzie B
12th Mar 2021 11:55

Sorry the revised calculation from HMRC said "it had made the following changers" (not amendment)
Underpaid tax for earlier year included in 19/20 tax code has been changed to £59,340.60, because the figure does not agree to our records.

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Replying to Cazzie B:
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By richard thomas
12th Mar 2021 12:07

Presumably the figure in the SA as submitted was £0.00. The PTA or SA account online should show whether in arriving at the SA the box relating to an underpayment showed any amount and if it was accepted or changed.

The "correction" from HMRC suggests that they have a record of this ridiculous figure and can tell you how it arose. But in any case you should object to the change.

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Replying to Cazzie B:
RLI
By lionofludesch
12th Mar 2021 12:13

Cazzie B wrote:

Sorry the revised calculation from HMRC said "it had made the following changers" (not amendment)
Underpaid tax for earlier year included in 19/20 tax code has been changed to £59,340.60, because the figure does not agree to our records.

I suspect £59340.60 doesn't agree with their records either if they care to look a bit more carefully.

Thanks (3)
Replying to richard thomas:
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By More unearned luck
12th Mar 2021 13:20

Whatever HMRC have done it is plainly not a correction. It is not making an incorrect SA into a correct one, or at least making it less incorrect. Further, how can any officer (or the Board*) acting honestly and reasonably believe that he, she or they was/were making a 'correction'? It seems to me that s 9ZB is not engaged at all; HMRC have acted ultra vires.

*This seems to me be the effect of s 103 FA 2020. 'HMRC' means the commissioners of HM Revenue and Customs. The commissioners are a bunch of human beings who delegate much of their work to other human being (officers). All these human beings use computers in their work. Section 103 does not seem to me to authorise decision making or the coming to conclusions by computer. As regards s 9ZB all it seems to do is to legitimise HMRC's practice of giving no officer's name on forms SA302. This makes objections, technically, difficult because of the requirement to address objections to the officer giving the notice.

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Replying to More unearned luck:
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By richard thomas
12th Mar 2021 16:58

It might fall within s 9ZB(1). That depends on what the entry was on the online equivalent of Box 7 in SA110, viz.

"Underpaid tax included in PAYE coding (Page 1 of 2)

Underpaid tax for earlier years included in your tax code for 6 April 2019 to 5 April 2020 (from your PAYE Notice of Coding):
£ xxxx
Yes No"

1. If the figure shown was £0.00 and the taxpayer or their accountant entered "yes" then as long as there was no entry for such a UP on the P2 then it is difficult to see how HMRC can legitimately say that the officer had reason to believe the return was incorrect in the light of the information they had.

2. If the figure shown on the Box 7 question was c £60k and the taxpayer or their accountant entered "yes" HMRC can legitimately say that the officer had reason to believe the return showing a tax figure below £100 was incorrect in the light of the information they had. But I don't understand how, if the return was online, this could happen as the Box 7 figure will automatically go into the tax calculation.

If the taxpayer clicked "no" in scenario 1 they would be expected to put a figure in. It is possible that the taxpayer (or their accountant) put this mysterious large figure in, but it seems unlikely.

If the taxpayer clicked "no" in scenario 2 they would be expected to put a figure in. It is possible that the taxpayer (or their accountant) put the correct figure of £0.00 in and somehow the computer did not pick this up.

Whether or nor there was a s 9ZB(1) event I do not think anything is gained by failing to reject the correction on the grounds that it was not valid (and you may well be correct about this).

As to your * footnote, "Officer of the Board" in s 9ZB has currently to be read as saying "Officer of Revenue and Customs" by virtue of s 50(2) Commissioners for Revenue and Customs Act 2005."

The effect of s 103 FA 2020 is to effectively (but not by textual amendment) add "HMRC" to the persons capable of issuing a correction. I entirely agree with you that s 103 does not authorise a computer to make a decision, as distinct from giving effect to an officer's decision. In my Finance Act Note in the British Tax Review [2020] Vol 4 pp 515-521 on s 103 I come to the same conclusion. Worth a read if you suffer from insomnia.

Another string in the taxpayer's (and, for that matter, anyone else's) bow is to argue that the notice was an expression of an automated decision, so that they have a right under section 14(4)(b) Data Protection Act 2018 (DPA) to have a human being reconsider the decision. HMRC as the data controller has 1 month from receipt of the request to respond (UK GDPR Article 12(3)). I currently have a request under DPA with HMRC in relation to a coding notice but the month has not yet expired. If HMRC do not reconsider, the remedy is a complaint to the ICO.

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Replying to richard thomas:
RLI
By lionofludesch
12th Mar 2021 17:08

richard thomas wrote:

It might fall within s 9ZB(1). That depends on what the entry was on the online equivalent of Box 7 in SA110, viz.

"Underpaid tax included in PAYE coding (Page 1 of 2)

Underpaid tax for earlier years included in your tax code for 6 April 2019 to 5 April 2020 (from your PAYE Notice of Coding):
£ xxxx
Yes No"

1. If the figure shown was £0.00 and the taxpayer or their accountant entered "yes" then as long as there was no entry for such a UP on the P2 then it is difficult to see how HMRC can legitimately say that the officer had reason to believe the return was incorrect in the light of the information they had.

2. If the figure shown on the Box 7 question was c £60k and the taxpayer or their accountant entered "yes" HMRC can legitimately say that the officer had reason to believe the return showing a tax figure below £100 was incorrect in the light of the information they had. But I don't understand how, if the return was online, this could happen as the Box 7 figure will automatically go into the tax calculation.

If the taxpayer clicked "no" in scenario 1 they would be expected to put a figure in. It is possible that the taxpayer (or their accountant) put this mysterious large figure in, but it seems unlikely.

If the taxpayer clicked "no" in scenario 2 they would be expected to put a figure in. It is possible that the taxpayer (or their accountant) put the correct figure of £0.00 in and somehow the computer did not pick this up.

Whether or nor there was a s 9ZB(1) event I do not think anything is gained by failing to reject the correction on the grounds that it was not valid (and you may well be correct about this).

As to your * footnote, "Officer of the Board" in s 9ZB has currently to be read as saying "Officer of Revenue and Customs" by virtue of s 50(2) Commissioners for Revenue and Customs Act 2005."

The effect of s 103 FA 2020 is to effectively (but not by textual amendment) add "HMRC" to the persons capable of issuing a correction. I entirely agree with you that s 103 does not authorise a computer to make a decision, as distinct from giving effect to an officer's decision. In my Finance Act Note in the British Tax Review [2020] Vol 4 pp 515-521 on s 103 I come to the same conclusion. Worth a read if you suffer from insomnia.

Another string in the taxpayer's (and, for that matter, anyone else's) bow is to argue that the notice was an expression of an automated decision, so that they have a right under section 14(4)(b) Data Protection Act 2018 (DPA) to have a human being reconsider the decision. HMRC as the data controller has 1 month from receipt of the request to respond (UK GDPR Article 12(3)). I currently have a request under DPA with HMRC in relation to a coding notice but the month has not yet expired. If HMRC do not reconsider, the remedy is a complaint to the ICO.

The first things to establish are .....

1. Is there really a huge underpayment ?

2. Why was such a huge underpayment included in a tax code for a source of income amounting to less than 10% of the afore mentioned huge underpayment.

I'm finding HMRC's assertions less than convincing, to be honest.

Thanks (2)
RLI
By lionofludesch
11th Mar 2021 17:42

Well at least you can reduce the POA's with a fair amount of condidence.

He's not going to have a £60k underpayment on an annual basis.

Thanks (1)
Replying to lionofludesch:
By Duggimon
12th Mar 2021 08:47

I wouldn't be so sure. Last year he wouldn't have thought he could have it this year but here we are.

Maybe shoot for the six figures next year? The sky's the limit in this brave new world!

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By Tax Dragon
12th Mar 2021 09:06

With those levels of declared income.... is the client Donald Trump?

No, wait... he's only 74.

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By Cazzie B
12th Mar 2021 09:55

Thank you so much for all the suggestions. As soon as the authorisation comes through I will be calling HMRC.
BTW the client is also a director of a limited company, now run by his children, hence the dividends, but took no other income from the company.
I have also just noticed that the client had £1,119 of self-employment income, but the previous accountant only claimed £58 of expenses. Surely he could have claimed the £1,000 allowance.

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Replying to Cazzie B:
By Duggimon
12th Mar 2021 10:12

Plenty time to amend if that's the case, I'm sure the client will love you forever if you turn that tax demand into an actual refund!

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Replying to Cazzie B:
RLI
By lionofludesch
12th Mar 2021 10:35

Cazzie B wrote:

I have also just noticed that the client had £1,119 of self-employment income, but the previous accountant only claimed £58 of expenses. Surely he could have claimed the £1,000 allowance.

Aye, you're right.

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Replying to Cazzie B:
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By Tax Dragon
12th Mar 2021 10:46

>£1k income from £58 spend is a pretty decent return. If he's, say, acting as occasional consultant to the company, the trading allowance isn't available.

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Replying to Cazzie B:
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By I'msorryIhaven'taclue
12th Mar 2021 12:21

Does the same accountant act for the kiddies' limited company (that dad is a director of)? You'd mentioned earlier on that the accountant has been filing ARs but not companies' accounts.

If so, how large is the debtors figure in filed accounts? Could dad have somehow been landed with a massively overdrawn DLA?

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Replying to Cazzie B:
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By Michael Davies
17th Mar 2021 09:36

Have you tried calling HMRC recently?

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Replying to Michael Davies:
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By Cazzie B
17th Mar 2021 16:45

Calling first thing in morning

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accountant in london
By Accountant in London
17th Mar 2021 09:59

I would suggest going through the client's personal tax account, it may shed light on the previous year's income and coding notice.
If they don't have one then set it up?

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By Mr J Andrews
17th Mar 2021 10:12

Nothing but absurdity so far ;......... payments on account , no Trading Allowance , the coding notice underpayment .........Yes ; get the 64-8 processed and speak with HMRC.

But apart from the directorship with the limited company - now run by his kids - is there anything else the querist should tell us of. A whopping P11D somewhere perhaps ?

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By David Gordon FCCA
17th Mar 2021 13:00

It is not for us to comment because we do not know the objective facts.

The first thing to do is to send a letter of appeal with a request for postponement of collection, and for a full explanation of number involved. copy this to HMRC complaints.
With a comment that HMRC will be billed for time used to correct any of their errors.
In any event it should be possible to examine the taxpayer's records via the HMRC tax system
It is worth keeping in mind the judge's comments in the Elizabeth v British Gas case, which all of you should read up.
Counsel for BG opined that Ms Elizabeth should not have been upset about the outrageous bill because she should have been aware that this was merely a computer error, and these things happen.
The learned judge said (My translation & summation) Bullshit. At the end of every computer there is a keyboard and a hand with fingers. He ordered BG to pay Ms E £10,000 and costs, for its unacceptable pursuit of her.
All of you should read the case. "Computer error" is not a "Reasonable excuse" for unreasonable pursuit of an alleged debt.

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Replying to David Gordon FCCA:
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By richard thomas
17th Mar 2021 13:27

The case is (Lisa) Ferguson v British Gas Trading Ltd. See 20-22 in

https://www.bailii.org/ew/cases/EWCA/Civ/2009/46.html

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By tonyaustin
17th Mar 2021 14:36

Surely if £59k was coded out, it would have meant a very high K code (K13000?), which would have meant much more that £644 being deducted from her pensions of £15k. Until HMRC explain the underpayment figure in there tax calculation, who knows what has happened?

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Replying to tonyaustin:
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By lionofludesch
17th Mar 2021 14:57

tonyaustin wrote:

Surely if £59k was coded out, it would have meant a very high K code (K13000?), which would have meant much more that £644 being deducted from her pensions of £15k. Until HMRC explain the underpayment figure in there tax calculation, who knows what has happened?

Surely they'd want about £5000 a month from her private pension of £15000 - £9000 state pension = £6000 a year but the tax would be limited to 50% of gross, which means they'd only collect £250 a month however high the coding was.

Utter nonsense.

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Replying to tonyaustin:
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By Cazzie B
17th Mar 2021 16:41

Code is K16567X

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By petestar1969
17th Mar 2021 17:30

The client hasn't made a really big gift aided donation to a charity has he?

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Replying to petestar1969:
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By lionofludesch
17th Mar 2021 18:05

Imho, the issue is not so much the size of the alleged underpayment but the attempt to code it out of a tiny source of income.

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