Tax allowance and married persons tax allowance ? Problem

nad1611

I asked a question in relation to this before but not directly related to Tax. Long story short my father in Law(F-I-L) passed away recently my M-I-L had died in 1996.
My Husband is Executor. Going through my F-I-L's papers were are concerned to see that he did not inform certain parties of his wife's death in 1996. This would not have been done to, avoid or fraud, but he wasn't particularly the best at this sort of thing and wouldn't ask for help at the time, we presumed naively that he'd done everything.

He hadn't informed HMRC, for example that his wife had died and I've found his PAYE Coding Notice for this current Tax Year included the Married Allowance, consequently allowing him a larger Tax Free Allowance than he should have had.

We think we know what the answer will be, but wanted to know what the position is. Whilst returning an R27, his Tax affairs will now be looked into and we're sure this will arise. If the Estate has to repay what he should have paid all weel and good, but we'd like to have a heads up first.

John_Pierpoint

Presumably the DWP (Department of Work & Pensions) managed to catch up with the death of the MIL?
Usually the problem is as a result of claiming benefits, when having too much capital.
You really need to post some more information about FIL's estate and other sources of income.
Have you got his annual benefits statements starting with state pensions and including the benefits he was claiming?
Probably a bit late now, but was he receiving ( & cashing) the correct benefits.
Have you a record of his tax codes over the last few years and how PAYE was being collected from his income?
Have you any copies of enquiries made by HMRC and FIL's replies? (You can bet that HMRC has kept copies).
As FIL has died roughly half way through the tax year that runs from 06apr11 - 05apr12, in normal circumstances he would be due a modest tax refund, as he will have been entitled to a full personal allowance enhanced by his age.
Tax for old people is MORE complicated than for normal employees:

http://www.taxvol.org.uk/faq.htm

I would recommend getting on top of the situation, "reconciling" the figures back to what ever records FIL has left, if you can, before reporting what might be a can of worms to HMRC and giving yourselves even more hassle.

HMRC (income tax section) has had serious administration problems for the last few years, hopefully these are now easing after the introduction of a new computerised system. Your deadlines for reclaims and corrections are being shortened from the normal commercial law of 6 years.
http://www.hmrc.gov.uk/about/paye-taxpayers.htm

Time limits are shorter already for tax payers on self assessment.

However if there is a suggestion of fraud or wilful refusal to cooperate - then HMRC can go back a lot further and impose extra penalties.

As a result of HMRC's delays and errors, some tax payers are claiming exemption from paying "back-tax" under ESC A19 (see threads on this forum).

http://www.hmrc.gov.uk/esc/esc.htm

jimmo

Things are probably not as bad as you may fear.
In your other thread you said that HMRC advised that no further action was needed. For the reasons that John_Pierpoint explained, unless the deceased died in late March or early April there is normally a repayment due when somebody dies.
Normal practice at HMRC is to issue an R27 in order to be able to make the repayment.
Perhaps the deceased didn't actually suffer any tax deductions in the year of death. Then there could be no repayment, and from the HMRC point of view no point in issuing an R27.
Having said that it seems pretty clear that HMRC are under the impression that your FIL was still married whereas your MIL died in 1996.
I see that John_Pierpoint has referred you to ESC A19. Whilst that may very well be useful to you, can we put it aside for the time being until you know whether there is an actual tax debt and if so, how much it is?
I hope my reasons for suggesting this approach will become clear later in this post.
So let's look at the worst case scenario and assume you FIL knew what he was doing and deliberately failed to tell HMRC that his wife had died in 1996.
First and foremost there are specific time limits in respect of deceased people.
http://www.hmrc.gov.uk/manuals/chmanual/CH54200.htm
So, whilst your FIL's tax may have been wrong since 1996, assuming he died in the current tax year,2011/12, the furthest HMRC can go back is to 2005/06.
As regards penalties, in my days at HMRC penalties died with the deceased. If the person who committed the offence is no longer with us there is no longer a person to charge with the alleged offence. I am afraid that I cannot find confirmation of that in the current manuals covering Income Tax but I have found this in the Inheritance Tax Manual.
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM36166.htm
I would suggest that, at most there is 6 years worth of tax to pay plus interest but no penalty.
If the executor were to take his chances and hope that HMRC don't realise that something was wrong he may well get away with that but if he doesn't, he will be in danger of facing a personal liability for any tax due, because of his failure to exercise his duties as an executor and suffer a personal penalty for failing to notify HMRC of the shortcomings in his father's tax affairs.
Coming back to John_Pierpoint's reference to ESC A19, anything your husband does to try to disguise the problem will, quite frankly, muddy the waters and leave him vulnerable to attack from HMRC and give them an excuse to blame him rather than look at the cause of the problem..
It's only my personal opinion, but I think that your husband should do it by the book and come clean with HMRC.
Then he will have the best chance of making a successful claim under ESC 19.
When we look at ESC A19 I find it very easy to believe that your FIL has, since 1996 never completed a Tax form nor phoned HMRC, to claim that his wife was still alive and, unless he actually did that the ESC A19 argument will come down to the question of whether he was a vulnerable old man who didn't really understand or a wily old fox who knew exactly what he was up to.
Your husband really should be able to win the argument as long as he does the right things from day 1.

John_Pierpoint

Thanks Jimmo for this carefully researched and reasoned response - I learn something new every day.
My only previous knowledge of HMRC procedures in this area, is based on pure hearsay - I've told this story before and it must have been a long time ago:
I shared a section of a Pullman dining car, enjoying a British Rail breakfast. The layout was a small table for two on one side of the gangway and a table for four on the other side. The rest of the carriage was sparsely occupied.
I had nothing else to do but "earwig" the conversation of the other 4 of my companion passengers. It transpired that they were "panjandrums" from the tax department. They were on their way to turn over a family business in the Manchester area.
Their case seemed to be based on the concept that "Young Mr Grace" had died, and to have died that rich he must have been fiddling his taxes for years.
http://en.wikipedia.org/wiki/Pullman_train_%28UK%29
http://en.wikipedia.org/wiki/Are_You_Being_Served%3F

nad1611

John_pierpoint thankyou.
Jimmo,thank you so much for your answer. It's so refreshing to have someone answer ones thread in such a way, instead of the often heavy handed accusatory type. You have pinpointed what it is we want to do and that's get things right and do what's right.

My F-I-L most definetly would not have done anything to defraud, having had literally no schooling, he really wasn't particularly au fait with things like this, we had no idea that a Tax Allowance would have remained, presuming if we thiught about it at all, that DWP's info would somehow update other systems. I suppose unless you know, you're not going to ask a question about something and he always said "the bank say everything's okay", I expect that simply meant that he'd sorted out the bank accounts with his wife's name on.

The situation with regard to his allowance and pensions etc, was

2010/11 Personal Allowance £9640
Married Couple's Allowance £6965
£16605

State Pension/state benefits -£7034
A Tax free amount £9571

His earnings from his private pension were for 2011= £4063

If my calcs are correct and he pays 20% Tax, he's probably been underpaying by about £300 a year, given that his actual allowance should only have been £9640 annually.

We'll read up your links and do we presume a starting place would be to send in an R27? How would you actually go about informing the HMRC, of this situation?
Thanks again.

Have just found this and wonder if it has any bearing?
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem7256.htm

suso

300 pound is a good figure to have been underpaying tax for upto April 2010.

When the databases were merged in 2009 creating one centralised record for each person.
A temporary tolerance was put in place, that tax that had been underpaid by upto £ 300.00 would not be collected, any underpayments discovered that were smaller than that amount and had not been notified to the taxpayer were to be written off.

Presuming that the works pension that was being paid was the same in 2009/2010 as it was in 2010/2011 and the state pension was 6862, then the u/p for 9/10 would be 257.00 and not collected, of course if your fil had a lot of savings in the bank and receiving high amounts of interest, these figures might need to be changed due to possible reduction of age related allowances.

If the u/p was similar (and more importantly below 300.00) in previous years and HMRC had not calculated an u/p then they will be written off as well.

Regarding any penalties for not reporting the death / not questioning the married couples allowance, there would not be any, as Jimmo has said there is no-one to accuse.

Any tax owed for 2010/2011 would need to be paid from the estate, if there is not enough funds in the estate, the debt dies with the individual.

A letter to the tax office explaing the situation and asking for confirmation that the tax affairs are in order would suffice,

A R27 form is for a potential refund to the estate, as has been said previously most people when they pass away will have had too much tax deducted and will be due a refund, so for this year there wouldn't be a refund, (based on receiving half the pension and half the state pension)

HMRC will not be going back collecting more than 4 years of unnotified underpaid tax except in criminal / lack of cooperation cases

nad1611

Thankyou so much. Yours and Jimmo's words have really reassured us. The last thing we wanted was the idea that somehow our F-I-L, would somehow be seen as less than he was. I can honestly say he would never have knowingly done this and would be mortified if he knew we were having to concern ourselves in this way on his behalf.So once again, this is very reassuring.

My F-I-L died in June, so F-I-L would have received about 2 months of 8 weeks of pension and Occupational pension, so just to recap we will fill out the R27 and await a response from that. When you say to send a letter to the Tax Office explaining the situation, do you mean set out what we have discovered and give all the amounts for the period that we have e.g.we have a few P60's.
Hope you can just clarify that for me.

Also any thoughts on the link I posted;http://www.hmrc.gov.uk/manuals/tsemmanual/tsem7256.htm


Are HMRC treated the same as anyone else and would need to make a claim like anyone else, as it's in The Gazette and would expire early November.

Niggles

In my experience writing as you describe to HMRC, (i.e. explaining the situation and include all the amounts that you have) is the best approach. Then leave it up to them to request further information etc.

One point, however, in your earlier post you show a PA of 9640 and MCA of 6965 making a total of 16605 allowance. You deduct 7034 and then state that there is a tax free amount of 9571. This is not totally correct. The PA of 9640 is a tax free allowance. The MCA is given at the flat rate of 10% or equivalent to a reduction of £696.50 of tax due. When you receive any HMRC calculations you might want to be aware of this

nad1611

The numbers quoted, were actually from the Paye Coding Notice. It is their calculations and their wording which states the £9571 is a Tax Free Amount. His code is 957T.

Excuse my ignorance but what you've said doesn't really mean anything to me. How do I use this in any way, when you say;
"When you receive any HMRC calculations you might want to be aware of this" .

It may be glaringly obvious, but I obviously haven't quite seen it!

jimmo

nad1611 wrote: »

The numbers quoted, were actually from the Paye Coding Notice. It is their calculations and their wording which states the £9571 is a Tax Free Amount. His code is 957T.

Excuse my ignorance but what you've said doesn't really mean anything to me. How do I use this in any way, when you say;
"When you receive any HMRC calculations you might want to be aware of this" .

It may be glaringly obvious, but I obviously haven't quite seen it!

Don't worry about it.
The key point here is that your FIL was not entitled to Married Couples Allowance in the first place and it definitely should not appear in any computations from HMRC.
You were already on the right track with your computation in post # 5.
By the way, suso obviously knows much more about the temporary tolerance than I do and hopefully things will turn out as predicted by suso.

nad1611

Thanks, I'll try and let you know how we get on. Thanks once again,everyone.