Mysterious change in tax owed for 21/22: from £3.65 refund to £982.60 owing with no explanation

FatherTireseus

I'm just wondering if anyone else has come across this.....

I submitted my tax return for 2021/22 in July 2022.  It was a bit more complex than the average I'd guess.  Some pension income (former employer's pension plus some SIPP drawdown); some EIS and SEIS tax relief; untaxed interest; a small amount of taxed interest; some dividends, including a handful classed as 'foreign', and some EIS loss relief for an EIS investment which went into administration.  Sounds grand but all in all well under six figures.  When I submitted the return it said I was due a refund of £3.65 which fitted in with my own independent calculations of my tax liability, given roundings here and there.

Having just received my 2023/24 notice of coding I logged onto my HMRC account to see on the home page "You owe £982.60" for the tax year 2021/22, which was a bit alarming to say the least.  Clicking on the link 'Find out why you paid too little tax' takes me to a page with the following text:

-----------

HMRC used the following reasons to work out your tax calculation – those that caused you to pay too little are shown before any that would cause you to pay too much.

Too little tax paid

We have reviewed your tax position and worked out that you have paid too little tax due to a number of reasons. This may be because you:

• changed jobs or have more than one job
• have more than one pension
• are in receipt of a taxable state benefit such as the State Pension or Carer’s Allowance
• work for a company that has just been taken over or merged with another

Untaxed interest

You paid tax on an estimated amount of interest of £6,000, but you should have only paid tax on the actual amount of £5,681.

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I retired a while ago so the changing jobs or takeover/ merger reasons aren't relevant.  Similarly I am not yet in receipt of state pension or indeed any government benefit.  The only relevant item on the list that might apply to me is that I was in receipt of more than one pension, but all my pension income from all sources was declared in my tax return. 

There is a calculation summary against the overpayment but all that quotes is a single amount for the tax they claim I owe, less what was paid and the difference being £982.60.  Then it says "A full calculation and explanation of why you paid too little tax is given in the tax calculation letter that HMRC sent you."  Needless to say, dear reader, I haven't had any letter.

And when I go into the page with my 2021/22 calculation in detail, all I see are the figures leading up to the £3.65 refund due, which is what the calculation was when I submitted my return.  I can't see any detailed calculation of the higher tax amount HMRC claim I owe.

I'm hoping this is a system glitch (although that might be too much to hope for) and I will be on the phone to HMRC first thing tomorrow.  But if it is a system glitch I just wondered if anyone else had experienced this, as if it isn't I really don't relish the time spent on the phone with HMRC trying to get to the bottom of it.

FatherTireseus

Just to add, I think this change has only just happened, as I had a notice of coding dated 'January 2023' arrive in the post this week, and it makes no mention of it.  Looking on line, my tax code for 2023/24 has now been amended by £2,456 which I assume is HMRC's attempt to recoup the £982.60 it thinks I owe at a marginal rate of 40%.  So I infer (possibly incorrectly) that the change has happened between them sending out the old notice of coding and today, when I happened to look at my account.  A new notice of coding may be on the way in the post.  It still doesn't alter the fact I have no idea how they came up with £982.60 in the first place.....

[Deleted User]

Does you statement on the portal reflect the change? Otherwise, it would appear at first glance that HMRC has calculated your tax liability without any reference to your return whatsoever . Has it been ‘captured’ as HMRC like to call it?

It seems that you have no option but to telephone - try 8am as the least busy time. 

Even so, there should be a calculation somewhere as to how it arrived at the underpayment. The absence of these seems to a recurring theme on here!

Dazed_and_C0nfused

Untaxed interest
You paid tax on an estimated amount of interest of £6,000, but you should have only paid tax on the actual amount of £5,681.

That message looks like something you get on a PAYE calculation, not Self Assessment.

I suspect if you contact HMRC on Monday (just before 8am seems to work best) you'll find you have had the year reviewed on PAYE.  

You can only have one or the other, PAYE or Self Assessment so if it is the case that a P800 has been issued for 2021:22 then HMRC will need to vacate it and amend your 2023:24 tax code to remove any element of underpayment which originates from the P800 and is specific to 2021:22.

This will probably be the whole £982 but PAYE calculations can include tax owed for multiple years so it may be more complicated with you owing something.  But chances are it will be the whole £982 which can be removed.

Were you sent a 2021:22 return or notice to file or did you choose to file one having been in Self Assessment in a previous year/years?

Dazed_and_C0nfused

Having just received my 2023/24 notice of coding I logged onto my HMRC account to see on the home page "You owe £982.60" for the tax year 2021/22, which was a bit alarming to say the least. Clicking on the link 'Find out why you paid too little tax' takes me to a page with the following text:

Is there a 3 line account section there somewhere, something along the lines of this example?

Tax Liability for 2021:22 = £1000
Tax paid during 2021:22 = £18
Tax Underpaid for 2021:22 = £982

FatherTireseus

Thanks D&C.  I have chosen to complete a self assessment in past years.  I have occasionally had notices from HMRC saying I don't need to file, although in some years they've subsequently rescinded that, and said I did.  But because I tend to make a few EIS investments each year* I like to file a return, and also because I have dividends, taxed interest, untaxed interest etc and my estimates for those aren't always 100% accurate.  And I also find HMRC sometimes choose to put their own number in my tax code, regardless of what I give them as an estimate.   When I tried to update my estimate of interest receivable a few months ago when interest rates started rising, I got a letter back a couple of weeks later saying they couldn't process my request to increase  my estimated interest receivable as they needed sort codes and account numbers - I never had that before.

(*Yes, I know I can submit the EIS forms direct to HMRC for a refund without a tax return, but I submitted my 2021/22 tax return before one small value EIS certificate was received.  When I did get it, I sent that off separately in September 2022.  Still waiting to hear from HMRC on that score, five months later.  So I have worked out it's easier to submit all my EIS claims in my tax return as that gets processed more quickly).  

You are correct in that there is a 3 line summary of 'tax we calculate, tax you paid, tax you owe':




And, if I look at my full calculation:








Now I look at it in more detail, it seems like they have based the £982.60 on the fact I paid £8,524 on pension income, but ignored the £23.75 tax I paid on interest (minibonds through the Abundance platform where the issuer is required to deduct tax, plus something from Hargreaves Lansdown's 'loyalty bonus' on investments which is taxable).

The 'foreign investments' aren't anything too exotic, mostly things like Lindsell Train Global Equity which is classed as a foreign dividend, and Royal London Sterling Extra Yield bond where the interest is classified as foreign.

And yes, I do make quite a lot of gift aid donations in case anyone thinks that number is high.  

So I'm still struggling to see how they get from a detail of £3.65 refund to owing £982.60 as the numbers on the various pages aren't consistent.  I shall set my alarm for 7.55am tomorrow to get on the phone and I will update when I know more.....

FatherTireseus

Oh, and I meant to add I've been through all my paperwork and I haven't had a P800 for 2021/22.  Although if they've just issued one it may be 'in the post'.

Dazed_and_C0nfused

FatherTireseus said:

Thanks D&C.  I have chosen to complete a self assessment in past years.  I have occasionally had notices from HMRC saying I don't need to file, although in some years they've subsequently rescinded that, and said I did.  But because I tend to make a few EIS investments each year* I like to file a return, and also because I have dividends, taxed interest, untaxed interest etc and my estimates for those aren't always 100% accurate.  And I also find HMRC sometimes choose to put their own number in my tax code, regardless of what I give them as an estimate.   When I tried to update my estimate of interest receivable a few months ago when interest rates started rising, I got a letter back a couple of weeks later saying they couldn't process my request to increase  my estimated interest receivable as they needed sort codes and account numbers - I never had that before.

(*Yes, I know I can submit the EIS forms direct to HMRC for a refund without a tax return, but I submitted my 2021/22 tax return before one small value EIS certificate was received.  When I did get it, I sent that off separately in September 2022.  Still waiting to hear from HMRC on that score, five months later.  So I have worked out it's easier to submit all my EIS claims in my tax return as that gets processed more quickly).  

You are correct in that there is a 3 line summary of 'tax we calculate, tax you paid, tax you owe':




And, if I look at my full calculation:








Now I look at it in more detail, it seems like they have based the £982.60 on the fact I paid £8,524 on pension income, but ignored the £23.75 tax I paid on interest (minibonds through the Abundance platform where the issuer is required to deduct tax, plus something from Hargreaves Lansdown's 'loyalty bonus' on investments which is taxable).

The 'foreign investments' aren't anything too exotic, mostly things like Lindsell Train Global Equity which is classed as a foreign dividend, and Royal London Sterling Extra Yield bond where the interest is classified as foreign.

And yes, I do make quite a lot of gift aid donations in case anyone thinks that number is high.  

So I'm still struggling to see how they get from a detail of £3.65 refund to owing £982.60 as the numbers on the various pages aren't consistent.  I shall set my alarm for 7.55am tomorrow to get on the phone and I will update when I know more.....

I think you are making this slightly more complicated than it is.

They are two completely independent calculations, the £3.65 hasn't changed to £982.

One is based on your Self Assessment, using the data you provided on the tax return.

There is a second generated by HMRC using the PAYE data and whatever other information they held i.e. bank/building society interest.  That calculation wouldn't use other data from your tax return.  But you would normally have received a proper calculation with the full detail.

So you need them to vacate/get rid of the PAYE calculation and issue an updated tax code for 2023:24.  Can't be certain without the full calculation but it's likely, though not guaranteed, that the full underpayment entry relating to the £982 will be removed.

This will probably have happened because in HMRC's eyes you weren't expected to complete a Self Assessment for 2021:22 but you decided to submit one anyway.

To avoid this happening in future you could ask them to set a special signal on your record so you remain in Self Assessment irrespective of whether you meet the criteria for a tax return.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam101140

[Deleted User]

This could cause confusion:

(*Yes, I know I can submit the EIS forms direct to HMRC for a refund without a tax return, but I submitted my 2021/22 tax return before one small value EIS certificate was received.  When I did get it, I sent that off separately in September 2022.  Still waiting to hear from HMRC on that score, five months later.  So I have worked out it's easier to submit all my EIS claims in my tax return as that gets processed more quickly).  

Submitting a return before subsequently sending in further separate documentation is really not the thing to do. You should have amended the return. As it sits, the final submission is not correct. You still can amend it and should. 

Quite a bit to be cleared up here! 

FatherTireseus

purdyoaten2 said:

This could cause confusion:

(*Yes, I know I can submit the EIS forms direct to HMRC for a refund without a tax return, but I submitted my 2021/22 tax return before one small value EIS certificate was received.  When I did get it, I sent that off separately in September 2022.  Still waiting to hear from HMRC on that score, five months later.  So I have worked out it's easier to submit all my EIS claims in my tax return as that gets processed more quickly).  

Submitting a return before subsequently sending in further separate documentation is really not the thing to do. You should have amended the return. As it sits, the final submission is not correct. You still can amend it and should. 

Quite a bit to be cleared up here! 

I would quite happily have amended my tax return to do this.  However in a previous year I had amended a previous year's tax return to change the gift aid figures and subsequently got a letter from HMRC telling me I couldn't amend gift aid in a tax return, so please change it back, which I did.

So I thought hmm, I'll check with HMRC about EIS forms.  So I duly rang the HMRC help desk and was told no, you can't amend a tax return to add in EIS certificates which you received after the tax return was submitted.  You have to post them in.  So I did what I was advised to do.

It's not impossible that I was advised incorrectly, though.....

[Deleted User]

FatherTireseus said:

purdyoaten2 said:

This could cause confusion:

(*Yes, I know I can submit the EIS forms direct to HMRC for a refund without a tax return, but I submitted my 2021/22 tax return before one small value EIS certificate was received.  When I did get it, I sent that off separately in September 2022.  Still waiting to hear from HMRC on that score, five months later.  So I have worked out it's easier to submit all my EIS claims in my tax return as that gets processed more quickly).  

Submitting a return before subsequently sending in further separate documentation is really not the thing to do. You should have amended the return. As it sits, the final submission is not correct. You still can amend it and should. 

Quite a bit to be cleared up here! 

I would quite happily have amended my tax return to do this.  However in a previous year I had amended a previous year's tax return to change the gift aid figures and subsequently got a letter from HMRC telling me I couldn't amend gift aid in a tax return, so please change it back, which I did.

So I thought hmm, I'll check with HMRC about EIS forms.  So I duly rang the HMRC help desk and was told no, you can't amend a tax return to add in EIS certificates which you received after the tax return was submitted.  You have to post them in.  So I did what I was advised to do.

It's not impossible that I was advised incorrectly, though.....

I think that you were ill advised. We appear to have three ‘finalisations’ of the 2021/22 tax year.

1) The submitted self-assessment return. 

2) Additional information sent to HMRC relevant to that return (which should be included on it). 
3) An HMRC calculation, the basis of which no-one has any idea. 

Hopefully your call to HMRC will sort matters.