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Have you challenged a PAYE underpayment calculation (‘P800’)? Have HMRC replied saying that you still have to pay? LITRG explains what next steps you might take.

Introduction

We have written in previous articles about the tax calculations being sent out to PAYE taxpayers over recent months, explaining how you might check and challenge them.

We now explain what to do next if HMRC have rejected your request for tax to be written off, and how to pursue your case further if that is what you wish to do. We have listed below some ‘frequently asked questions’ and summarised at the end further guidance we intend to provide in the New Year when HMRC will start contacting people about paying back the tax.

Frequently asked questions

1. HMRC have written to me saying I do not meet the limited circumstances of Extra-statutory Concession A19 and I still owe them tax. Can I pursue my case further?

We would encourage you to pursue your case if you feel A19 does in fact apply, or at least press for a full explanation of why HMRC think it does not.

The letter denying you A19 treatment will probably be a standard issue saying you still owe the tax and offering no or very little explanation of why you do not meet the ‘limited circumstances’ of the concession.

On receipt of this type of letter, the next step is to ask HMRC again for a full explanation of what information they had about your tax affairs and how they have arrived at their decision not to allow you concessionary treatment.

Once you have obtained a full explanation, compare it to your own records and consider making a further complaint to HMRC, stating why you think the concession should apply in your case. Have a look again at our guide to the A19 concession when doing so. 

In pursuing your case further, you should write to HMRC setting out your complaint, asking for the matter to be referred to a senior officer. Clearly mark your letter ‘complaint’ and keep a copy for your records. If you are still not satisfied with the result, you can consider taking your case to the Adjudicator – see the useful link below to our general complaints guidance for more information.

2. I still don’t understand why HMRC say I owe tax. What should I do?

Most of the ‘standard’ explanations we have seen on the front of the P800s have been inadequate and many taxpayers have not been able to follow explanations they have been given over the telephone. In addition, several sources of income may be combined on the calculation in a single line called ‘PAYE income’ and estimated figures might have been included.

Therefore you should ask HMRC to write to you explaining the tax calculation, where the figures have come from (pointing out estimates) and why you have underpaid tax.

You need to make sure you understand what has happened so that:

1. you can check the calculation is correct, and understand if figures are estimated;
2. you can see whether there is anything you might not have claimed – for example, extra personal allowances or expenses against your income;
3. you can better gauge whether you can challenge the calculation – for example if your employer or pension provider might have made a mistake, or if HMRC have delayed in using information; and
4. whether the same problem might be continuing, meaning you are still not paying the right tax in this tax year – 2010/11, in which case you will need to contact HMRC to put it right.

Once you have obtained this explanation, you should be in a better position to challenge the calculation yourself (if possible) or, if you are still struggling to help yourself, it should make matters easier for an adviser to help you. As noted in our recent article, older taxpayers on low incomes can seek help from TaxHelp for Older People (see useful links below).

3. HMRC say I owe tax for years ending before 6 April 2006. Do I have to pay it?

Probably not.

The current reconciliations should only be covering 2008/09 and 2009/10 tax years, but in some instances HMRC might seek to recover tax from earlier periods. Be careful when contacting HMRC not to ask about tax years before 6 April 2008 unless you are sure you are due a refund for earlier years.

If this is the first time you have been notified of tax arrears dating back before 6 April 2006, you can appeal as the assessment probably will be out of time except in serious cases, such as fraud. The deadline to appeal is 30 days from the date the calculation is issued, but late appeals can be accepted in some cases (late appeals will be considered by HMRC, or by the independent tax tribunal if HMRC refuse).

4. I think my employer or pension provider made a mistake but HMRC are asking me to pay. Is this right?

Possibly not.

In some cases, taxpayers have been confused when contacting HMRC for an explanation of their P800 and been told something along the lines of: “your employer (or pension provider) did not deduct enough tax”.

This might mean one of two things:

1. your employer or pension provider did everything correctly and used the right tax code according to the PAYE rules, but this still meant you underpaid tax; or
2. your employer or pension provider failed to follow the rules correctly and used the wrong tax code, which meant you underpaid tax.

In (a) above, there has been no failing by your employer or pension provider and you then have to consider whether you can challenge your tax bill on any other grounds (for example, under Extra-statutory Concession A19 where HMRC have delayed using information).

But in (b) above, where your employer or pension provider has made a mistake, HMRC cannot ask you to pay back the tax without:

1. investigating the circumstances;
2. deciding that your employer acted in good faith or that you knew they were not deducting enough tax; and
3. issuing you with a formal ‘direction’ notice saying that they think you should pay back the tax.

You then have a formal right of appeal against that direction.

The key is establishing which of (a) or (b) applies in your case, where you think your employer or pension provider might have made a mistake. Again, you should ask HMRC to write to you setting out their understanding of how you came to underpay tax and what role your employer or pension provider played in that underpayment arising.

5. My income from small pensions has never been taxed in the past. HMRC have started taxing me on them since 6 April 2010, but I never received a PAYE coding Notice before. They still say I have to pay back tax for the last two years. Is this right?

Possibly not.

In 2008 and 2009 LITRG led a consortium of charities in persuading HMRC not to recover arrears of tax from pensioners with small pensions, where the arrears had arisen because of informal agreements between HMRC and the pension payers about how they would operate PAYE. Often these pensions were given a PAYE code ‘NT’ (meaning ‘no tax’) or a variety of others, including some of the pension companies’ own invention such as ‘EX’. Moreover, such pensioners might not have received P60s in relation to those pensions and had very little other paperwork.

HMRC have agreed that those pension sources should now be taxed only from 6 April 2010 and those pensioners should have received PAYE coding notices to tax them appropriately from now on. Unfortunately, HMRC cannot guarantee that these pensioners will be excluded from the ‘automatic reconciliation’ run of tax calculations.

If you think you might be in this situation, you will need to take action and ask HMRC to write off the tax. But if you have already done so, and they have told you that yours was not a ‘small pensions’ case, you can still consider whether you might be able to ask them for relief under Extra-statutory Concession A19.

6. I thought HMRC should have information about my tax affairs (either from me and/or others), but they say they did not. How can I check?

You might already have contacted HMRC to challenge your tax and they are still saying you have to pay. But perhaps you do not understand what information they held on file for you and therefore whether they acted on it correctly and without delay. Or perhaps you thought you had contacted them by letter or telephone or submitted a form, but they say you did not. 

Under their ‘Your Charter’ commitment, HMRC should give you the benefit of the doubt unless they have good reason not to; but in cases of dispute you are entitled by law to obtain a copy of your tax records by making a ‘subject access request’. We suggest you send HMRC a letter requesting the information, along the following lines:

“Regarding P800 tax calculations I have received for tax year[s] [2008/09 and/or 2009/10] showing tax underpaid, I would like to examine the evidence of my tax file. Would you please provide me with all the information I am entitled to under Section 7 (1) of the Data Protection Act 1998 for all the above years.”

Further guidance from LITRG to come in the New Year

Coding notices

In January, HMRC will begin issuing PAYE coding notices for the 2011/12 tax year, which will start to be used by employers and pension providers from April.

You will need to be vigilant when you receive these notices – keep a check on our website for further guidance early in the New Year as you might need to take prompt action, for example by objecting to the notice and then, depending on HMRC’s reaction, considering a formal appeal. 

Paying up

For those tax bills which cannot be collected through PAYE (where you owe more than £2,000, or no longer have sufficient PAYE income to deduct it from), HMRC’s What happens next? guide says they will be contacting you after 31 December 2010 about how to pay.

Unless you particularly wish to clear the bill now, you should resist any suggestion by HMRC that you pay earlier, either in full or in part. Our previous guide set out the issues about making payments, including a warning about the impact on means-tested benefits entitlement, to which we hope to be able to add a further update soon.

Useful links

LITRG’s general guidance on complaining to HMRC
PAYE tax calculations – round two
TaxHelp for Older People
LITRG appeals guidance
‘Your Charter’ on the HMRC website