P800: The annual reckoning
Helen Thornley looks at what triggers the issue of a P800 calculation, what to do if you disagree with HMRC’s figures and when the taxpayer may receive a simple assessment instead.
A P800 tax calculation is issued if, according to HMRC’s information, the taxpayer has underpaid or overpaid tax. The first wave of these annual tax reconciliations for 2018/19 started to land on doormats on 17 June 2019.
Who gets a P800?
Following the end of the tax year, HMRC carries out a reconciliation for anyone who received PAYE employment or a pension income in that year but who was not in self assessment.
The reconciliation checks to see if - based on the information that HMRC holds - the taxpayer has paid the correct amount of tax for that year. Reconciliations are also carried out for taxpayers not in PAYE but who receive a state pension that exceeds their personal allowance.
When their work for 2018/19 is complete, HMRC estimate that 85% of those for whom a reconciliation is performed will have paid the correct amount of tax, 10% will be entitled to a refund, and 5% will have an underpayment.
It is the two latter groups that will be issued with a P800 or potentially a PA302 where simple assessment applies, to correct the position.
HMRC should not attempt to reconcile anyone who is in self-assessment. However, sometimes the flag that prevents reconciliation can be accidentally removed. If a taxpayer in self assessment receives a P800 they should contact HMRC and advise that they will be submitting a tax return instead.
Given the vast numbers of taxpayer records that have to be reconciled, it takes HMRC some time to process and issue all the reconciliations. For 2018/19, HMRC aims to complete the bulk of reconciliations by November 2019, with the final deadline to complete the operation for the most complex cases being March 2020.
Since nothing is issued if the reconciliation does not throw up a discrepancy, a taxpayer who wants to know if HMRC has carried out a reconciliation can check by looking on their personal tax account (PTA). This information is not available to agents.
HMRC estimates that three-quarters of taxpayers for whom a reconciliation is performed will have bank interest. This information is provided by the banks directly to HMRC by 30 June following the end of the tax year.
Where HMRC’s records indicate that bank interest was received in 2017/18, it will wait until data has been received from the bank for 2018/19 before carrying out a reconciliation.
When a P800 is received the taxpayer should check the information HMRC used in its calculations. This will include making sure that any employment or pension income on the P800 matches supporting paperwork from the taxpayer’s employer, interest and dividend figures are correct, and that any allowances such as marriage allowance, or job-related expenses are included. The Low Incomes Tax Reform Group provides helpful guidance on how to check a P800.
Where the taxpayer is due a refund, this should be issued automatically within two months of receipt of the P800. The taxpayer can speed up this process by logging into their PTA and providing their bank details.
P800 letters have been notorious for not making it clear to individuals how they should settle any tax due. HMRC says it has improved the wording for 2018/19 letters.
In most cases, the taxpayer will have the tax collected from their employment or pension income through a change to their PAYE coding notice. Where this is not possible, the taxpayer should receive a payslip. Alternatively, HMRC may issue a PA302 (simple assessment) instead of a P800.
Why a simple assessment?
HMRC will issue a simple assessment instead of a P800 where the taxpayer:
- owes tax that cannot be taken out of their income automatically;
- owes HMRC more than £3,000; or
- has to pay tax on their state pension.
The intention was to gradually move more taxpayers into the simple assessment regime, but this was paused in May 2018 due to the pressures of Brexit work on HMRC resources.
Appealing a P800 or PA302
What happens if the taxpayer considers that their P800 is incorrect? In the first instance, they should contact HMRC to provide amended figures.
Where any differences cannot be resolved, the taxpayer cannot appeal against the P800 itself but can appeal against the new PAYE code that gives effect to the tax recovery. This follows the recent first tier tribunal (FTT) case of Zeus Mitchell, which referred back to an earlier FTT decision from 2012 in Prince and Others v HMRC where it was held that the P800 is merely an administrative process and not an appealable assessment.
In contrast, where a taxpayer receives a PA302, the simple assessment regime does include a right of appeal. If HMRC will not accept the taxpayer’s initial objections (which must be made within 60 days of the issue of the assessment) the taxpayer can appeal against a simple assessment demand.
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Helen Thornley has a focus on personal and capital taxes. Initially training as an accountant before moving to tax, she worked in practice until her appointment as a technical officer in 2017. She also has an interest in the history of tax.