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LITRG provides a positive update on HMRC’s position as regards writing off PAYE underpayments which stem from HMRC’s failure to match taxable state benefits to claimants’ other income.
 

Those in peril…

LITRG has been contacted by large numbers of distressed state benefits claimants who have received PAYE ‘P800’ tax calculations from HMRC showing they have not paid enough tax. This is because HMRC’s old PAYE computer system failed to join up individuals’ records where they were in receipt of a taxable state benefit and other income.

Those affected are mainly recipients of taxable incapacity benefit, but we have also heard from individuals receiving widowed parent’s allowance, carer’s allowance and contribution-based employment and support allowance. 

The announcement for state pensioners

The Government announced that people who received their state pension for the first time before 6 April 2009, but who did not have it included in their tax code, would have any resultant tax underpayment written off under Extra-statutory Concession A19.

Applying the same principles to other state benefits

LITRG then pointed out to HMRC that exactly the same policy should apply for recipients of other state benefits as again HMRC would have received information both from the Department for Work and Pensions about their benefits and from employers or pension providers about other income. For example:

• After a heart attack, Jim was forced to retire early on a small ill-health pension. He was also awarded incapacity benefit.
• Billy’s wife died of cancer in 2006, leaving Billy to bring up their daughter as a single parent. He was awarded widowed parent’s allowance. He was unemployed at the time of his wife’s death but a few months later started a new job. He filled in a P46 but the form did not mention widowed parent’s allowance and information from the DWP was inadequate to alert him to make sure it was taxed properly.
• Liliana cares for her mother and receives carer’s allowance. Under the ‘permitted work’ rules, she took a part time job in 2008. Added together, her income then began to exceed her personal allowance. As in Billy’s situation, there was nothing on the P46 to alert her that carer’s allowance should be included in her PAYE code.

In all three situations, HMRC would have received benefits information from the DWP and received details of the other pension or employment income. Had they acted upon that information, James, Billy and Liliana would not have underpaid tax.

HMRC agreement

In a welcome development, now HMRC have agreed that an equivalent treatment to that for state pensioners will be extended to the recipients of other state benefits. Discussions are also ongoing where the taxable state benefit first came into payment from 6 April 2009.

What should you do now?

Are your circumstances similar to the examples given above? If so, and HMRC have not already agreed to write off your underpayment, you should now contact them again. We attach below a sample letter to guide you – use the address on the P800 you received.

Links to sample letters on the LITRG website

Sample letter claiming Extra-statutory Concession A19 in state benefits cases – PDF version
Sample letter claiming Extra-statutory Concession A19 in state benefits cases – Microsoft Word version

Useful links

LITRG’s state benefits checklist