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I have had a couple of instances where due to PAYE tax being owed the Revenue have opened an SA record to collect the tax. In both cases they stated that the client had insufficient income to allow the collection by a change in tax code! It would seem that the Revenue are interpreting the "rules" in a manner that suits their requirements at any particular time. In both of these case the tax codes that were used were claimed to be incorrect by HMRC despite the codes being on P60's and P45's. The Revenue when I queried this stated that they never issued these despite the employer using them!
I wonder if they are doing this also because the SA system is automated. The computer checks the arrival of the return, issues penalties for late returns, calculates the tax due and the interest applicable. Outwith the SA merry-go-round, HMRC staff have to spend time and effort to enforce the rules and collect the tax due.
Similar experience with a client who had been seconded to the UK and returned home. She telephoned HMRC and was informed that it was impossible for her to settle (by online banking) the small PAYE underpayment shown on Form P800 for the tax year of arrival. A notice to file a SA Tax Return was apparently issued, but this was not received at the client's overseas home address - the first document she received was a penalty notice. By the time a paper agent authorisation had been put in place (yes, we tried the online authorisation, but, as usual, the code didn't arrive within the 30-day expiry period) there were only a few days left to file and avoid further penalties. Eventually we were able to see that HMRC had offset the original tax liability against the repayment issued in respect of the following tax year (year of departure). A P800 was presumably issued for that year, too, but was never received overseas.
I was bemused by the summary but reading the decision left me little wiser as to whether this is really how HMRC operate these days. Why did they conclude they were "unable to collect the underpayment through his tax code" when he seemed to have still sufficient employment income? What additional enforcement options did they gain from the SA returns? And did no one look at this case in the round and realise any tribunal would spot HMRC had cocked up and bend over backwards to find a way to get the taxpayer out of the mess?
I know the FTT doesn't have the power to change the law, but this decision could potentially have far-reaching consequences. Just think how many taxpayers are dragged into SA just because they earn over £100k. All their income is taxed under PAYE, but they must file tax returns anyway if a notice to that effect has been sent to their last known address.
Is the FTT now saying that all those notices are invalid as they are not for the purpose of determining income? If so, there must be a huge number of people who can now appeal against penalties when the tax return was sent to an old address that still happens to be their last known address.
As few people do tell the taxman when they move, HMRC have been making shedloads of money from penalties in cases where they failed to update SA records from the PAYE system.
Of course, they have the Alexander Revell case to fall back on if the employer notified them of a new address on a P14 or via RTI before the notice was issued, but in most cases that still means it was valid for the first year if the taxpayer moved early in the tax year after earning £100k the year before.
Perhaps this might be another valid line of defence in such cases.
I had a young girl come in to see me with a huge penalty from HMRC being chased by a debt collection agency.
When she was 17 she had a job which almost used her personal allowance and all this was dealt with accurately under PAYE . She additionally did some work over a few weekends in a local hostelry simply to help them out, and earned enough to take her slightly into a taxable position. That employer used rti but took no tax. She was due to have paid £50.
They sent her a self assessment not a tax calculation! Now, this is where she was in the wrong, as she ignored it. However she was very young and had no understanding of taxes at all.
The penalties grew and they passed it all to a debt collection agency. At this point HMRC coded out the penalties! Why on earth did they not do it to the £50?
In the end, HMRC were fine about it, dropped penalties and my new client paid the £50 tax out of her savings. But what a rigmarole!