Need help - HMRC ignoring facts and overtaxing me

NotVeryTechie

Hi there

I am feeling really desperate and helpless and I hope someone can help me. I received an ex gratia payment (tax free) in August 2018. I was advised to apply to do a self assessment and tried to register for that, but it was declined by HMRC. I called them several times and wrote to them. I am now working as a contractor under an umbrella company and I do not earn anywhere near £100,000. I just received my new tax code and the letter says that my personal allowance is £0 and I now have a tax code of K1. I don't know how to sort this out. Phoning doesn't work. Writing doesn't work. I feel like they are going to just tax me for a tax-free payment and there is nothing I can do about it.

Dazed_and_C0nfused

What was the purpose of registering for Self Assessment?

Who advised you to register?

Have you checked the tax code on your Personal Tax Account?  This should show more details about why your Personal Allowance has been reduced, maybe HMRC have estimated you will earn more than £125k?

NotVeryTechie

The accountant at the company that made the tax-free payment to me suggested that I register for self assessment. I tried, but HMRC turned it down. They have now made my tax code K1 because there is an amount that they say I haven't paid tax on. But it is tax free. So I should not have to pay tax on it. But I can't get that information to HMRC because they won't allow me to do so.  Does that clarify?

Dazed_and_C0nfused

How do HMRC even know about this tax free payment?

What was the purpose of registering for Self Assessment?

NotVeryTechie

I am assuming from my bank account. Also, I called them many times to try to regsiter for self assessment. The reason for trying to register for self assessment was because of the ex gratia payment. I don't know how else to explain this. I got this money and it is tax free - but the accountant said that I had to register for self assessment otherwise I wouldn't be able to prove that it was tax free - I tried to register and was turned down - now I can't prove it is tax free and I am being taxed on it. And I don't know what to do. Phoning doesn't work. Writing doesn't work. How else can I prove that it is tax free? Do you have any help to offer?

Dazed_and_C0nfused

If it is tax free why would you want to include it on a Self Assessment return?

How do HMRC have access to your bank account???

You haven't explained at all how you are actually being taxed on this tax free income?

No one can help you until you provide a clearer explanation as to what's actually happened.  So far it doesn't make much sense and contacting HMRC with the type of information you have posted so far is only likely go make things worse.

Plenty of people on here willing to help but give us something to work with.

BoGoF

It's sounding like your employer reported the 'ex-gratia' payment to HMRC. Log on to your personal tax account and see what it shows. HMRC won't have details of your bank account. However I would say just because it's called an ex-gratia payment doesn't automatically make it tax free. 

xylophone

https://www.gov.uk/personal-tax-account
With regard to the ex gratia,  why exactly  was it paid and how much was it?
Have a look at this.
https://www.redmans.co.uk/ex-gratia-payments-a-quick-guide-for-employees/

oldbikebloke

as others have said, just because it is "ex gratia" does not always mean tax free.
presumably you were advised to register for self assessment because the payment was >£30,000?

In such cases the employer is required to report the payment to HMRC, whether it is taxable or not. It is then down to you and HMRC to confirm the tax liability, which you state is £0 but which HMNRC appear to be disagreeing with if they have adjusted your code for that reason.

I appreciate the above is simply saying: sort it out with HMRC, and that is exactly what you are saying is not happening. But there really is no other answer than: keep trying.

NotVeryTechie

xylophone thank you so much for the tax account link. I logged in to that and there is definitely a mistake as they have estimated my income for the next tax year at more than £200k, which I wish it was, but sadly it isn't!
The ex-gratia was less than £30k, and it was definitely tax free.

Dazed_and_C0nfused

So the Personal Allowance being £0 has absolutely nothing to do with the ex Gratia payment then?