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A tip for low income taxpayers who receive penalty and surcharge notices from HMRC, and comment on HMRC's recent consultation on collecting tax on benefits and expenses under PAYE, by LITRG.

HMRC penalties and surcharges - check before you pay up

The deadline for submitting tax returns for 2006-07, and for paying the remainder of any tax due for that year, was 31 January 2008.  Since then, HMRC’s systems have been generating £100 fixed penalty notices for tax returns filed late.  For 2006/07 tax which was still unpaid at 28 February, 5% surcharge notices will also be issued. 

These notices are produced automatically and sometimes incorrectly.  So if you have had a penalty notice even though you did send in your return on time, or did pay your tax by 28 February, challenge the penalty! 

HMRC’s systems struggled to cope on 31 January this year and some people attempting to file their self assessment tax returns electronically were unable to do so as the system crashed.  HMRC announced that anyone who could not file by midnight on 1 February because of the systems failure should file as soon as they possibly could thereafter. The system would continue to issue automatic penalty notices, but HMRC would accept claims to cancel the penalty and treat the return as having been filed on time where the problems with the HMRC service were the cause of the delay. 

Also, HMRC tend to receive a large number of paper returns in the run-up to the deadline which leads to processing delays. That may also cause incorrect penalty notices to be issued. 

If you think you should not be charged a penalty, make sure you contact your HMRC office (details of how to do so should be given on the penalty notice).  Even if you were late in sending in your tax return, you can ask HMRC to cancel the penalty if:

• you owed no tax on 31 January 2008; or
• you have a ‘reasonable excuse’ for sending in your tax return late.  

If HMRC do not agree that the penalty notice should be cancelled, you can appeal to the General Commissioners.

HMRC to collect tax on benefits and expenses under PAYE?

HMRC have just completed a consultation on whether employers should operate PAYE on benefits and expenses and whether the benefits rules for those earning less than £8,500 should be changed.

We have raised concerns about the impact of these proposals on some of the most vulnerable members of society. We have also recommended that further research is done before HMRC press ahead.

Employers have long demanded a simplification of the tax system where they provide benefits in kind and reimburse expenses to employees.  At present, benefits and expenses are added up after the tax year end and reported to HMRC (and employees) on form P11D.  Workers earning less than £8,500 in a year do not pay tax on certain benefits and they should be given a different form – a P9D.  

There are now proposals that would require employers to operate PAYE on benefits on a weekly or monthly basis. In addition, the tax exemption on certain benefits for workers earning less than £8,500 is being considered for abolition.

These proposals, if taken forward, may have unintended consequences on tax credits and would result in a tax increase for the very low-paid.  

Whilst we applaud HMRC’s intention to simplify, this must not be done without firstly assessing the impact of change across the board.  Further research should be conducted so that simplification is not achieved at the expense of those already battling against poverty.