Gobsmacked at IR mentality!

plumtreebabe

My cousin was one of the unfortunate ones last year to get a tax error correction demand for £500 or so; she duly paid it back over a few months out of her meagre wages and thought that was that. Not so! Last month she got a letter from the IR explaining that she shouldn't have paid it back yet, that it should be deducted from next year's tax allowance and enclosing a cheque for the £500! She doesn't want to accept the money and she doesn't want to pay it all off again next year so what should she do?

Mikeyorks

You don't say how she paid it - as it's not exactly easy to do. It relies on a voluntary payment if you decide to DIY .... and it's inherently risky if you don't get a payslip from HMRC with a specific reference. The instructions with the P800 (underpayment notice) were clear enough :-

If you agree with the calculation you do not need to do anything but keep it safe.
If you have overpaid tax, we will send you a cheque.
If you have underpaid tax, please note that this is not a demand for payment. We will either :
send you a PAYE Coding Notice early in 2011 to tell you that we will be changing your tax code for the tax year 2011-12 to recover what you owe, or
if the underpayment due is £2,000 or more HMRC will contact you about how to pay.
Please make sure you read the explanatory notes and flyer that came with the calculation as these will help you understand what it means.

Having said all that .......... it is always an option, albeit very risky, to simply make a voluntary payment at any point in the PAYE year if you consider an unexpected event will leave you underpaid. And HMRC should be able to take the voluntary payment(s) in precisely the way they would for someone owing over £2k.

So - she can contact them and ask they cancel the cheque and keep the funds to offset against the underpayment. Or accept the cheque - and ensure her 2011-12 Coding Notice has a restriction of around £2500 in it which will (£2500 @ 20% = £500) collect the underpayment monthly.

chrismac1

I am afraid this sums up HMRC. Anything to create extra work and preserve jobs in HMRC.

jimmo

I am also gob smacked by this. In my days at HMRC we had very definite procedures to ensure that we didn't repay somebody if they owed us money.
However if that is what HMRC want to do I would regard the £500 as an interest free loan from HMRC, put it in an instant access deposit account. Then draw the money out as and when the extra tax is paid back.
That would be an awful lot simpler than arguing with HMRC.

ceeforcat

I spoke to HMRC regarding payment plan for a P800 underpayment which client could not pay by due date.

Was informed that it could not be coded out as client did not pay tax ????

She has a pension and part-time job taxed at BR and she does not pay tax??. Was transferred to Cumbernauld who agreed a payment schedule (interest free) over three years.


The end result is what counts, I suppose.