HMRC send out millions of tax codes which apply to the system of PAYE automatic taxation. This means that tax should have been automatically deducted from your pension or salary. Mistakes are often made, particularly when a taxpayer has more than one source of income or a change in employment circumstances. The wrong tax code can mean underpayment of tax and the potential for a devastating bill from the tax office. In some cases a tax rebate could be due if you have paid too much.
The tax office may take years to discover a mistake of this nature and will then demand payment to be made within three weeks. This is an immediate and frightening shift of responsibility onto the taxpayer who had initially provided all the necessary information and was unaware that they had the wrong tax code. How many of us have access to a few hundred, or a few thousand, pounds at such short notice?
For example, Jessica Gorst-Williams of The Daily Telegraph took on the case of Peter Patton who received a bill for £10,459 pounds from HMRC in 2009. This bill had accumulated over six years as a result of HMRC applying the wrong tax codes to his combined income of a final salary pension and current work for a disabled care provider. Mr Patton had retired in 1999 from the civil service and paid his bill in full. In 2010 he read an article in the Daily Telegraph about a clause in tax rules which states how he could have his tax arrears written off. His subsequent complaint was denied and may only have received justice, and a refund, after his case was spotlighted by the Telegraph journalist.
‘Escape Clause’ not being used by HMRC to resolve their mistakes
There is a clause called ‘Extra-Statutory Concession’ – ‘Esc A19’ – which sets out three conditions which, if met, allow tax arrears to be written off. These are;
- HMRC failed to make “proper and timely” use of the information provided to it.
- The tax payer “could reasonably have believed their tax affairs were in order”.
- No notification was sent to the taxpayer within twelve months of the end of the tax year in question.
HMRC have been criticised by the Head Tax Adjudicator in a report published in June of last year. This report stated that they were investigating a “marked increase” in complaints that should have been resolved by the tax office using ESC A19. Also that “careless and avoidable errors” had not been noticed and corrected by HMRC whilst handling complaints.
Instead of using this concession, especially when no pattern of tax avoidance is established, HMRC are aggressively pursuing the taxpayer in order to fix their own mistakes. Cheap Accounting director Elaine Clark said, “Taxpayers who suffer errors are being forced to be more tenacious. In our experience HMRC has toughened its stance. It’s almost as if officials don’t read the case file, they just send out a letter demanding payment even if the taxpayer would have legitimately qualified for ESC A19”. When faced with a bill from an authority like HMRC, taxpayers are anxious about challenging the figures and are unaware of their own rights within the system. Disputes are lengthy, which is why more people are turning to the Tax Adjudicator for justice.
An HMRC spokesperson said that rules had not been tightened and that the number of complaints had “tailed off”. He added that “The concession (ESC A19) only became of interest to taxpayers because we were behind in our end-of-year reconciliation process, but we have now been back on an even keel for years.” HMRC are putting a new system in place to help reduce the number of discrepancies in PAYE payments called ‘Real Time Information’. This changes the requirement for employers to give information annually to monthly or weekly submissions, depending on how they pay their employees. There is a massive amount of information necessary for the 44 million PAYE taxpayers and already there are fears that tax code accuracy has been compromised by the sheer volume of data being processed.
