MSE News: Thousands more could get tax written off using HMRC loophole

MrPaulSir

Hi all, first post so apologies if I am going over some old material.

Pension since 2008, well until HMRC got a decent taxes system a lot of people got away with tax free incomes and situations such as employers/pension providers applying tax codes such as the infamous 80T (Legal and general pensioners?) which had NEVER been issued by HMRC.

The current NPS system in place is good. It responds to the information posted by employers/pension providers automatically (in most cases), the old COP - Computerization of Pay as you earn introduced in 1984 - was atrociously diabolical to be generous.

It was not fully automated, employers would send in P14/P35/P9/P11d etc but this information would not automatically flow over to the COP system and required manual input.

Manual input means work for a human, sadly a lot of the manual work was never carried out fully and this only came to light with the introduction of the NPS set up. Employers/pension providers send in the details as they do every year, but shock horror, they actually get recognized now.

I have no quibbles with the NPS regime which will struggle to cope with the proposed RTI gubbins HMRC are rolling out now (EMPLOYERS/PENSION PROVIDERS submitting MONTHLY rather than ANNUAL reports on pay and tax - mind, it worked wonders in the CIS - construction industry, cash in hand, no payslip, not anymore.)

NPS is a fair system, dependent on employer/pension provider compliance of course, where as the old system was a neglected pile of horse kak to be polite.

People who "got away with it" in the past can no longer do this as there is less human input from the monkeys employed by HMRC and more input from the payment providers, all in all a couple of years of catching up with the "forgotten" incomes from about 2009 (be grateful HMRC don't exercise the 20 YEAR RULE for NEGLIGENCE etc) to maybe 2012/13 and it will be very straight forward from there on as responsibility will mainly lie with the INDIVIDUAL or PAYMENT PROVIDER to supply HMRC the details, but unlike the old COP system, 99.8% of information will be automated and not shoved on a manual worklist for someone to "lose" or "forget" about.

Outcome - a fairer taxes system to ensure 99%+ pay the correct tax when it is due or within 12 months of it becoming due rather than disappearing into the "VOID" of somebodies overloaded drawer!

I admit, it will not be perfect but it will ensure that a fairer amount of tax is paid and the tax gap will start to reduce.

justmaz

Thank you for the information Paul....tax has always gone way over my head. You assume (or I did) as the tax office was aware of my circumstances that I would have been paying the correct tax by way of my part time income. Infact as I have all my P60s from way back when I would like to know where I earned £5000 without paying any tax!! My income from Tesco was very small as I only worked 14 hours per week and even given my state pension it doesnt equate (as far as I know) to an £945 or any other underpayment. Well I am about, hopefully if I can get through, to telephone them and see when this supposedly occurred. Meanwhile thank you and all the other generous posters for your invaluable help.

justmaz

justmaz wrote: »

I had a coding letter in February 2012 giving me a tax code for 2012-2013 of 178L with no mention of any underpayment of tax & I have never had any letter stating that I have at any stage underpaid tax. Yesterday I had another coding letter with a code of K293 which replaces the 178L code. On the back of the coding notice its states the following....'You owe £945.60 from a previous tax year-you may remember us telling you about this before. I think this is their way of closing the loophole mentioned here! How can I prove that they have never informed me before? I dont even know the year this underpayment occurred. I worked for Tesco for 11 years prior to my retirement July last year so was under the illusion that as I was PAYE any tax I owed was taken care of. As they intend to recover monies due to them over the next 12months that will almost completely wipe out the £99 pm I get Tesco pension. What can I do? Any advice would be gratefully received.

Just an update to let you know that I have discovered (from an hour long phone call to the tax office) that the underpayment occurred 2008/9. I was told that they have only just found it & apparently they sent me a letter detailing it at the same time as the coding notice. Conveniently for them I didnt receive the letter, I was told that post does, unfortunately, sometimes go astray Well I have put in an appeal & they are going to send me a letter within the next 2 weeks informing me of their decision. Fingers crossed everyone please!

MrPaulSir

Justmaz - hi again, the £5000 of untaxed income. This may relate to the state pension. When HMRC have reconciled (passed judgement) on your taxes they may have included the state pension in your tax code as an ANNUAL amount - this is the equivalent of putting a restriction in your tax code to cover 52 weeks of state pension but HMRC issue the tax code on a week/month 1 basis so it only collects the tax due from the point of the tax code being operated.
The other way the state pension code have been included in your tax code is a restriction on an ACTUAL basis - this puts a restriction in the tax code for the EXACT amount of state pension you will receive, with the ACTUAL amount there will nearly always be an underpayment of tax unless your total income for that tax year was under the personal allowance.

From past experience, it may be better now, if the ANNUAL amount of state pension is coded then the system used to include the ANNUAL amount in the P800 calculation and not the CORRECT ACTUAL amount which will have only been received for a portion of the year.

I'd strongly recommend checking the amount of state pension included on your P800 calculation - if it ever arrives - it is not guaranteed but there is a chance the ANNUAL rather than ACTUAL figure for state pension may have been used causing the system to think you earned more than you really did.

Good luck

Fenser

Hello,
I am hoping someone can please offer me advice regarding the following.

I received a notice of underpaid tax for 2008 -2009. I had retired in 2009 and always worked and paid tax through PAYE. When I reached pension age in 2008 I filled in a form from HMRC and thought no more of it until this bill.

I complained under rule ESC A19 and had the amount owed wiped out, which was a relief. I even spoke to HMRC in October 2010 and they informed me there would be no more surprise bills, everything had been sorted out.

However last year I had another underpayment request for year 2010 -2011, basically it was from April 2010 until it was corrected it in October 2010.

They are refusing to budge on this and insist ESC A19 does not apply. I am not understanding why, as it is part of the original HMRC error that wasn't corrected until October 2010 - can they back date this? They say that because the code was issued in October 2010 (when they corrected it) revenue delay does not apply. Should I take it further and complain or just give in?

MrPaulSir

Hello Fenser,

Under ESC A19 HMRC are correct to state it does not apply for the 2010-11 year in your case. As the information was discovered and corrected within that specific tax year.

Because the tax coding notice was issued within the 2010-11 year and implemented then HMRC have not delayed for that particular year and corrected the "information" within the tax year.

ESC A19 refers to Revenue Delay, this means that if information is knowingly held by HMRC and it takes more than 12 months following the end of the tax year to act upon it then "delay" has occured.
The reasons for 2008/09 and 2009/10 being "written off" under ESC ruling is because it took HMRC more than 12 months following the end of the aforementioned tax years.

I would still write a letter of complaint.

State that you have had the 2 previous "written off" and think it unfair and obscene that tax can still be requested for 2010/11 as you where previously advised that the matter had been dealt with and that was the end of it.

Your complaint should not refer to ESC A19 but instead the complaint should refer to the fact you where advised that everything has now been resolved when clearly it has not been.

If you where advised by a telephone advisor and they stated it had been dealt with during the phone conversation then refer HMRC to the time and date of the call, it is recorded.

If you have a letter advising that it is dealt with refer them to or send a COPY of the letter you received.

Either way, tell them in writing that you disagree with the decision based on misleading advice because as far as you feel you had been advised the matter was now closed or resolved.

Do not lie down, if they say no, they say no and it does not affect you in anyway at all.

Good luck and if succesful, throw me a tenner

Fenser

Hello Paul,

Thank you very much for your advice.

I will do as you say and complain about the wrong information that was given to me. Luckily I did jot down the name of the person I was speaking to and the date and time, so hopefully they can listen to the conversation.

I will update this when I get a response.

Any advice that saves me money is definately worth a tenner!

Thanks again.

Sivad

Thought I'd let you ALL know that we heard yesterday that Inland Revenue have written off a claim made on my husband for 2005 to 2008 of £4,116.75 Basically they made an error in his coding which they only realised when he came of pension age in 2008. We had a P800 on his 65th Birthday stating he owed the £4k and in black and white they stated that they would amend his code to recoupe the forsaid underpayment. The following week he received a new tax code and every year ever since. These change of codes have been filed away in the belief everything was in order. Then January this year he had a P800 claiming underpayment for 2008-09 for £5926.75 and that he could make monthly payments over the next 3 years to pay it back!!!! His first words were I thought they'd sorted it?? Well he hasn't a clue on these sort of things & hence it was down to me to look into - I do have experience of Taxation but I'm no expert. After indepth investigate I realised they hadn't collected any of the underpayment going back to 2005 as they had stated they would do!! The change of Tax Codes he'd been receiving each year were in relation to his Government Pension!! Then, just by chance I spotted about the loophole ESC A19 in Martin's weekly news and set about the task to get it written off.

30/5/12 Notification 2005-08 £4116.75 w/o PARTSUCCESS!!!

BUT Watch this space as we're now appealing for the balance to be written off, which relates to 2008-09 for £1800 as that also falls under the same criteria of ESC A19.

;)Many Thanks to Martin's Money.;)

System

MrPaulSir wrote: »

Hello Fenser,

Under ESC A19 HMRC are correct to state it does not apply for the 2010-11 year in your case. As the information was discovered and corrected within that specific tax year.

Because the tax coding notice was issued within the 2010-11 year and implemented then HMRC have not delayed for that particular year and corrected the "information" within the tax year.

ESC A19 refers to Revenue Delay, this means that if information is knowingly held by HMRC and it takes more than 12 months following the end of the tax year to act upon it then "delay" has occured.
The reasons for 2008/09 and 2009/10 being "written off" under ESC ruling is because it took HMRC more than 12 months following the end of the aforementioned tax years.

I would still write a letter of complaint.

State that you have had the 2 previous "written off" and think it unfair and obscene that tax can still be requested for 2010/11 as you where previously advised that the matter had been dealt with and that was the end of it.

Your complaint should not refer to ESC A19 but instead the complaint should refer to the fact you where advised that everything has now been resolved when clearly it has not been.

If you where advised by a telephone advisor and they stated it had been dealt with during the phone conversation then refer HMRC to the time and date of the call, it is recorded.

If you have a letter advising that it is dealt with refer them to or send a COPY of the letter you received.

Either way, tell them in writing that you disagree with the decision based on misleading advice because as far as you feel you had been advised the matter was now closed or resolved.

Do not lie down, if they say no, they say no and it does not affect you in anyway at all.

Good luck and if succesful, throw me a tenner

Complaint or not - if ESC A19 does not apply HMRC cannot give up the tax.

bakkesuk

For what's worth I will give you my experiences. i note, and agree, with ceiberman that HMRC has no powers to give up tax unless under ESAC19.

However, as I intend to, I would also encourage people to compain and take it as far as they can go.

I have underpaid tax over two years, and again probably in the year just gone. I have asked for ESCA19 to be applied but have been rejected. Their argument is that, as noted in posts above, they have acted within 12 months.

But also in their reply it is obvious that the tax processes are totally inadequate. They say that much is automated and imply a lack of control. At one point they say "even where we make mistakes there is no power to give up tax revenue".

At another point, perhaps critical to me, is that in early 2009 tax year there were changes happening in the system and they were unable to respond to requests to apply the correct tax code. At that point I went on to an occupational pension and HMRC did not respond to my pension provider. As a result I remained on a "non-cumulative" code rather, as HMRC say in their letter, if they had replied to my provider it would have been on a "cumulative" basis. I am not sure if this has caused my problem of overpaid tax, as when I started a part time job in October of 2009 this is where my overpayments have started. I passed my P45 to my employer (as requested by HMRC) and expected the tax processes to work on my behalf and correctly assess and judge my tax overe total income. Indeed, after this I did receive a notice of coding saying my tax code was 647L (or whatever it was at the time), from which I inferred everything was ok. Did I check my "payslips" - well no, but as people above have said why is the onus put on the taxpayer !!!

As I said above I do not know if the "cumulative" / "non-cumulative" issue is the root of the problem, but I intend to go back to them with a further complaint. It is probably now not about the ESCA19, but the pure fact of what appears to negligence in the tax system / processes which has put my family in financial hardship - despite doing everything I was asked to do. When I asked why they did not look at my (then) current tax year affairs when they acted upon the first years unerpayment, again it was blamed on automation and no manual intervention - to be frank, "do you expect HMRC to bother trying to get your taxes right".

If anyone has any views on the "cumulative" / "non-cumulative" aspect, I would wlecome them.