Extra Statutory Concession A19

Extra Statutory Concession A19 (ESC A19) means that HMRC do not have to collect the capital gains tax or income tax owed in certain circumstances – when they have not used the information given by the taxpayer within an acceptable amount of time.

These cases usually revolve around PAYE coding errors, which have gone on incorrectly over a period of time.

Why do tax code errors happen?

Many people believe that these mistakes arise because HMRC use the data they gather inefficiently. In the PAYE system, it is taxpayers’ employers who deliver information to the tax office. Whether they have the correct, or sufficient, information to give individual’s the right tax code is not usually something we ask ourselves. Would you understand enough to know what to check or where to find relevant information?

We do have a tendency to assume that HMRC will be accurate (and most of the time they are) but when they do make errors, the consequences are most heavily felt by the taxpayer.

Taxpayers that have more than one job during a tax year, can forget to tell HMRC all the necessary information and their employer ends up issued with the wrong tax code. This leads to the distinct possibility that you end up paying too little tax. Now, HMRC’s end of tax year reconciliation should pick this up straightaway. But sometimes it has taken years for tax underpayments to be identified and sorted out. This is where ESC A19 could be cited and the arrears be voided by HMRC, if they were at fault.

In proposed revisions to ESC A19, HMRC want to shift the responsibility for checking tax codes onto taxpayers and away from themselves. This allows them more leeway to collect capital gains and income tax arrears in such situations.

What are the current ESC A19 Rules?

At the moment, any arrears of income tax or capital gains tax can be forfeited by HMRC if they do not “make proper and timely use” of the information given to them by: the individual taxpayer, their employer, the DWP (concerning widow’s pension, state retirement or disability).

You would not have to pay any outstanding tax bill if:

• You received notification of your underpayment more than 12 months after the tax year during which HMRC had information that you owed more than you were paying
• You “reasonably” believed your tax position was correct
• You were told about an over-payment beyond the end of the tax year which follows the year of the repayment

There are a few, rare cases in which you would not have to pay outstanding tax on a notification received up to 12 months after the end of the tax year in question. This only happens if HMRC did not use the information they had about one of your income streams, on more than one occasion. Or, if they did not make “proper and timely use” of information they had and this resulted in arrears mounting up over two successive tax years.

What are the proposed changes to ESC A19?

Taxpayers will be able to use ESC A19 if they have paid too little tax because: HMRC repaid tax in error, or HMRC issued the wrong tax code, or HMRC did not issue a tax code at all.

There are a variety of different reasons why there may be an underpayment of income tax. It is not always a clear cut apportioning of blame to either HMRC or the individual taxpayer.

For example, you may have underpaid your income tax because:

• HMRC did not use the information you gave them quickly enough
• You, or your employer, didn’t tell HMRC that your employment situation has changed
• Record keeping mistakes were made by HMRC
• You are on an emergency tax code
• You, or your employer, gave HMRC incorrect information about the amount you earn or any changes to your employment

When is ESC A19 applicable to me?

ESC A19 will only be applicable if the following two situations have happened:

• HMRC did not fulfil its responsibilities regarding the handling of information in its possession.
• The taxpayers received notification more than 12 months after the end of the tax year in which their information was provided

The really interesting part of the proposed changes lies in the responsibilities listed for HMRC and the taxpayer. There are two clear lists of taxpayer responsibilities and HMRC’s responsibilities that must be met.

Individual Taxpayers:

• Each taxpayer is solely responsible for making accurate tax payments, even if they have an expert working on their behalf.
• Everyone must check their own tax code to make sure it is correct.
• It is up to the individual to inform HMRC of all employment or income changes that happen, as soon as they occur. This information should be updated with HMRC, even if it doesn’t seem to make any difference to the amount of income tax owed.
• It is advisable to keep any records supporting information given to HMRC. Also note the date, time and person you are talking to whenever you contact HMRC and record the details of the changes you are reporting for your own records.

HMRC’s responsibilities:

• Correctly record any information supplied to them by individual taxpayers
• Use all relevant information to reconcile end of year PAYE tax affairs
• Send or change tax codes in accordance with any updated information supplied by individual taxpayers.

HMRC Information

As with many other words, HMRC has its own particular definition of ‘information’ to apply to income tax and capital gains tax underpayments.

Individual taxpayers’ ‘information’ is counted as any direct contact (phone, email or letter) between you or your tax representative and HMRC. This would include any changes involving benefits, income, allowances or “personal circumstances”.

‘Information’ from the Department of Work and Pensions is considered to be forms P46 (DWP) and P46 (1B).

‘Information’ from an employer is identified as either submitted RTI or Form P11D, Form P46 (Pen), Form P46 (Car), or Form P45.

Nothing else is considered ‘information’ in determining employment and income circumstances.

Is there a deadline to request ESC A19 submission?

Yes, before the start of the tax year that you would be repaying your underpayment through PAYE. After this time, ESC A19 will not be applicable, even if HMRC are the cause of your tax underpayment.