HMRC Tax Errors P800

RobinJay

I have identified a loophole in the way HMRC calculate tax which enables them to mistakenly charge too much income tax. I don't know who else is affected but it could be lots of people.
There are a number of factors which cause this to happen.
1) If you pay insufficient tax in any one year you have a debt on your account and can opt to pay it back by adjusting your tax code in 2 years time. This can happen for example if HMRC have issued the wrong tax codes, or DWP are instructed to deduct tax from ESA and Carers Allowance but they do not do so.
2) HMRC do not bother to collect underpaid tax of less than £25 and do not give back tax that is overpaid if it is for a similarly small amount.
3) If your tax bill balances, give or take £25 they mark your account online as having paid the correct amount of tax, and refuse to issue a P800 tax calculation to show you the details - because they assume it balanced - close enough.
4) You cannot get details online of how they calculated your tax, it only states you paid the right amount.
5) If you phone and request a P800 they can send you one, although they may refuse on the basis they have to get the back office to do it, although they may not know this and mistakenly think you cannot have a P800 if the tax you paid was 'roughly correct'.
Here is a worked example:
* 2016-7 Mr A paid insufficient income tax and opted to have the debt of £300 added to his 2018-19 tax code.
* 2017-8 HMRC estimated the tax code based on the knowledge that in 2016-17 DWP did not collect income tax on benefits as they should have done. They over estimated and Mr A paid £15 too much tax. However this was below the threshold for worrying about so they marked Mr A's web account as having 'paid the correct amount' and did not send a P800 which would have shown the overpayment of tax.
* When Mr A checked online there were no details of how 2017-18 tax was calculated.
* When Mr A requested a P800 for 2017-18 HMRC refused.
* When Mr A contacted them again, they were able to get the back office to issue a P800. This showed that the debt had reduced from £300 to £285 because of the £15 overpayment the next year.
* 2018-19 HMRC estimated the tax code based on the knowledge that in 2016-17 DWP did not collect income tax on benefits as they should have done. They also took into account the debt of £300 from 2016-17. They over estimated and Mr A paid £40 too much tax, and received a P800 stating that this had happened and offering a refund of £40.
* However the latest P800 included the original debt of £300, not the reduced amount of £285 that would have been shown on the P800 for 2017-18 had HMRC been willing to send it, before they were nagged into it.
* Mr A's refund should therefore have been £40 plus £15 from the previous year.
While HMRC may decide not to process amounts of less that £25 and send you the money, they are not entitled to pretend the overpayment did not happen.

In summary, if you have ever added a tax underpayment to a future year's tax code you may have paid some of the debt off in the intervening period and not know. You cannot find out because of the HMRC policy of not sending P800s and not putting this information on your tax account online - when the tax calculation (nearly) balances.

The only solution is to phone and ask for a P800 even when HMRC claim you paid the right amount of tax - because their tax records web site may be wrong, as in this case.