HMRC issued wrong tax codes and now big tax bill needs to be paid in Jan 2018

tigerminxy

Hi

I've just done my self-assessment and discovered I've underpaid tax by a large amount. After doing some digging around, it looks like HMRC issued the wrong tax code to my employer and issued the correct tax code to my previous employer who I left years ago.

I'm not disputing the tax is owed and I know people will say that I should have read the tax coding letter properly and I should have set aside money each month, so please don't lecture me about that.

I'd like some advice please on what to do about the current situation given that it looks like it stemmed from an HMRC error. Is there any way to reason with them?

Thanks.

Pennywise

You can talk to them and see if you can pay it over a longer period of time, i.e. monthly through your 17/18 tax code to be deducted from your wages next year.

Don't expect them to write it off - that won't happen. You owe the money, so the best you can achieve is time to pay.

spadoosh

Probably no need to start a new thread ( i feel like a stalker follwing you round the forum).

I assume by reason with them you cant afford to pay it?

You still need to speak to them, this time however you need to ask about a time to pay arrangement. Without specific deatils i couldnt tell you the likelihood of being accpeted.

Ultimately it will come down to if they think you can and should pay it, you wil be expected to pay, if you dont, they will start enforcement procedures. If they do think you cant pay they will be more willing to set up a time to pay arrangement.

Contact HMRC and speak to them.

tigerminxy

Pennywise wrote: »

You can talk to them and see if you can pay it over a longer period of time, i.e. monthly through your 17/18 tax code to be deducted from your wages next year.

Don't expect them to write it off - that won't happen. You owe the money, so the best you can achieve is time to pay.

Yeah, totally expect to have to pay the tax. Just wish I had done it every month during PAYE rather than as an unexpected lump sum. I will see if I can get a payment plan out of HMRC.

agrinnall

Did you get a P2 coding notice around February 2016 to tell you that your code with your current employer would become BR? If so that's when you should have queried it.

Dazed_and_confused

If you have actually sent the return to HMRC then one option is for the underpaid tax to be collected by an adjustment to your 2018:19 tax code.

This is effectively an interest free loan as it means you won't finish paying the tax off until you are paid in March/early April 2019.

For this to be possible you would need to owe less than £3000 (for 2016:17) and have enough salary so your employer can deduct the extra tax.

You may also want to check your current years tax code(s) to make sure you don't find the same think happening again.

tigerminxy

agrinnall wrote: »

Did you get a P2 coding notice around February 2016 to tell you that your code with your current employer would become BR? If so that's when you should have queried it.

Yeah, thanks for that really useful advice. I'm just going to hop into my time machine now. !!!!!!.

agrinnall

tigerminxy wrote: »

Yeah, thanks for that really useful advice. I'm just going to hop into my time machine now. !!!!!!.

But you didn't answer the question, did you actually get a P2? If not then perhaps you can use that in your response to HMRC. But if you can't be bothered, feel free to just pay what you owe now.

dori2o

If the amount is less than £3k then assuming your going to have sufficient income in 18/19 onwards you can ask for it to be included in your tax code in 18/19. You can also ask if it would be possible to spread this over upto 3 years. This would prevent there being any additional interest added to the amount. Just make sure you submit the return by 30/12/17.

If the amount is more than £3k then the only option is to set up a time to pay agreement.

Do this before 31 January if possible.

Interest will be calculated as part of the agreement.

I know you dont want to hear this but this is a lesson. Always check your codes both on the coding notice and your payslip.

As you file returns online your Personal Tax Account will now have been set up. (same log in details as SA online).

Use the Personal tax account to check your tax codes etc are correct. Check the estimated pay HMRC hold and if necessary update it.

Whilst HMRC issue tax codes it is each individuals responsibility to make sure they are correct, and ensure that the correct tax is being paid from their income.

The personal tax account will help you to manage this easier.

Dazed_and_confused

dori2o

If the amount is less than £3k then assuming your going to have sufficient income in 18/19 onwards you can ask for it to be included in your tax code in 18/19. You can also ask if it would be possible to spread this over upto 3 years.

Is this true? I have seen clients where this has been refused and HMRC's own public guidance seems to suggest this isn't allowed?

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye98020

The collection of an SA underpayment cannot be spread over more than one year

dori2o

Dazed_and_confused wrote: »

dori2o

If the amount is less than £3k then assuming your going to have sufficient income in 18/19 onwards you can ask for it to be included in your tax code in 18/19. You can also ask if it would be possible to spread this over upto 3 years.

Is this true? I have seen clients where this has been refused and HMRC's own public guidance seems to suggest this isn't allowed?

https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye98020

The collection of an SA underpayment cannot be spread over more than one year

In some circumstances it can be, but only at HMRC discretion and only be the team at Debt Management as a concession.

Effectively if the underpayment via the code would cause significant personal hardship then the debt management team can if necessary extend the period of time that an SA underpayment can be coded over.

Granted I dont see it often but can be done.

As I say there has to be significant personal hardship and the team at DMB will usually request I&E information before doing so.

The reason why they will do it in these cases is because the collection is virtually guaranteed as the taxpayer cannot stop it (unless full payment is subsequently made) when done via the code as they can with direct debit/standing order etc. . It's also more cost effective than setting up time to pay arrangements which have a significant cost to them in terms of maintenance of the arrangement, especially in cases where arrangements are not adhered to for whatever reason.

But otherwise you are correct, in the vast majority of cases where the taxpayer has sufficient income and no hardship/financial difficulties, spreading via the code for SA is not allowed.