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Mr. Hartnett  Now Apologises

After originally saying, “I am not sure I see a reason to apologise”, David Hartnett has now apologised for the tax underpayments fiasco. But it appears that this change of heart was prompted by ministers, rather than soul-searching.

Further Admissions Before Treasury Select Committee

The heads of HMRC were brought before the Treasury Select Committee on Wednesday morning, to account for the problems with administration of Pay As You Earn (PAYE).

Further admissions were made, as regards failures in:

• “Media strategy” – HMRC had failed properly to warn the public/taxpayers what was going to happen
• “Very low staff engagement” – HMRC staff morale was at an all-time low
• There were “teething problems with the implementation of the new PAYE IT system” – although HMRC’s Chief Executive, Dame Lesley Strathie did helpfully confirm that she’d overseen every stage of the introduction of the new system since she’d become Chief Executive.
• “No decision has yet been made” on the 18 MILLION ‘legacy’ reconciliations going back to earlier years, which have not yet been resolved.

Good News for People with Larger Underpayments

It was originally announced that people who owed more than £2,000 – the limit for collecting underpayments automatically through PAYE codes over the next few years – would have to pay their liabilities within just 3 months, under the normal ‘Self Assessment Regime’, or face interest charges and possibly collection proceedings.

Mr. Hartnett had said that the larger amounts were possibly owed by people with larger incomes, who could therefore afford to pay much more quickly and it was implicit that they could / should pay the attendant interest.

John Andrew, of the Low Incomes Tax Reform Group, strongly disagreed:

"There are circumstances in which over a two-year period, for example on a bereavement where a widow suddenly inherits part of her late husband's pension, it is quite easy to run up this amount.

I hope that HMRC would live up to the Your Charter expectations and look at individuals [with these problems]."

It now appears that HMRC will be taking a much more sympathetic approach to these people, and that it will be easier to get significantly more “Time to Pay”, AND that no interest will be charged. Again, the softened approach appears to have been prompted by ministers.

A ‘webcast’ of the Treasury Select Committee hearing can be seen at Parliament’s website - HMRC's Operation of the PAYE System

Two final points to consider:

What if this latest round of underpayments demands money from a taxpayer, but it turns out that they were owed money in the earlier years – because they were one of the 18 Million unreconciled cases that still need to be resolved? Has HMRC taken steps to ensure that people will not be forced to pay money that they don’t actually owe?

And if it is the case that some of these taxpayers are owed money from earlier years, will HMRC still charge payment interest at a rate several times higher than the rate it applies to repayments? That hardly seems fair.