Tax calculation mistake

Darcy_B

Hi All.

I employed a tax specialist to submit my tax return because there were several elements to it and I wanted it to be done correctly. 

HMRC have retrospectively conducted a "Discovery Assessment" and conclude that I have underdeclared my earnings by £30,000. They want the tax, plus interest on that amount. 

After several hours of pouring through my tax return, I believe I have found the problem, but would need this confirming before I go back to my tax advisor, who is being difficult about the whole thing.

Hypothetically then, If say a taxable gross earning was £100K (on the P45) and the redundancy payment was within that total, I guess you could only subtract the amount after the first £30K from the gross taxable earnings figure to arrive at an "Earnings" figure.

The redundancy can then be split out on the tax return as £20K taxable and £30K tax-exempt, as the redundancy totalled £50K.

 Question:

On that basis you cannot subtract tax-exempt earnings from taxable earnings. I can see that he has deducted the whole redundancy payment of £50K, when I suspect he should have deducted only £20K.

Am I right?

Dazed_and_C0nfused

Could you explain why the P45 included non taxable income?

purdyoaten2

 The £30k tax free amount should not appear anywhere or be included in a tax document be it a P45 or P60 or, indeed,  a tax return. 

If the hypothetical earnings on the P45 showed £100k that should only include the taxable element of the redundancy leaving, in this case, taxable earnings of £80k.

Darcy_B

Dazed_and_C0nfused said:

Could you explain why the P45 included non taxable income?

Hi, Sorry for the confusion. The P45 did not include the non-taxable income. My tax advisor thought it did at first and blamed the company for doing it incorrectly by taxing the first £30K. Then I realised it was him who deducted 100% of the redundancy from the P45 figure.

Darcy_B

purdyoaten2 said:

 The £30k tax free amount should not appear anywhere or be included in a tax document be it a P45 or P60 or, indeed,  a tax return. 

If the hypothetical earnings on the P45 showed £100k that should only include the taxable element of the redundancy leaving, in this case, taxable earnings of £80k.

Thanks, that's what I thought.

The tax return showed four elements:

1. Earnings from Employer A (The area in question)
2. Redundancy payment split into £20K taxable and £30K non-taxable
3. Taxable profit from self-employment
4. Earnings from Employer B.

He deducted £50K from the P45 figure from Employer A to arrive at the 'Earnings' of £50K for that employer, hence why HMRC want the tax on that bit.

Darcy_B

"That bit" being the missing £30K

purdyoaten2

Darcy_B said:

purdyoaten2 said:

 The £30k tax free amount should not appear anywhere or be included in a tax document be it a P45 or P60 or, indeed,  a tax return. 

If the hypothetical earnings on the P45 showed £100k that should only include the taxable element of the redundancy leaving, in this case, taxable earnings of £80k.

Thanks, that's what I thought.

The tax return showed four elements:

1. Earnings from Employer A (The area in question)
2. Redundancy payment split into £20K taxable and £30K non-taxable
3. Taxable profit from self-employment
4. Earnings from Employer B.

He deducted £50K from the P45 figure from Employer A to arrive at the 'Earnings' of £50K for that employer, hence why HMRC want the tax on that bit.

Sounds like your tax advisor hasn’t a clue! 

You include the earnings from employer A, presumably 70k (I am confused by £80k - is it not £50k plus the taxable element of the redundancy payment - 20k? - probably my fault).

No separate entry is required on the tax return for the redundancy payment - no taxable element and definitely no tax free element. 

frugalmacdugal

Hi,

Darcy_B said:

Hi All.

I employed a tax specialist to submit my tax return because there were several elements to it and I wanted it to be done correctly. 

seems you know more than tax specialist, think you're due a refund of the fees.

Darcy_B

Thanks for all the comments.

If he accepts my invitation to discuss the matter, it is going to be very interesting to see how he reacts. I don't see it going well judging by recent communications. 

I need to figure out how to broach this with HMRC, unless he agrees to do that. I hope that by employing a professional to submit my tax return they think I was diligent enough. Then how to recover the interest from his insurance, assuming he has any.

sheramber

You are legally responsible for the information in your tax return, no matter who submits it.

The  dispute is between you and your  agent.

Darcy_B

sheramber said:

You are legally responsible for the information in your tax return, no matter who submits it.

The  dispute is between you and your  agent.

Surely by employing a tax specialist, I have taken all reasonable care to ensure that I was diligent when submitting my return? If the mistake was his doing, he was the 'careless' one, not me. 

I am disputing the tax return with my agent, but he has gone to ground and refuses to discuss and sends stalling emails. It has been seven weeks since I raised the issue with him and still I have no answer regarding the discrepancy. At this point it is costing me £2.60 per day in interest on the outstanding amount. His advice - don't do anything yet!

To be honest, I don't know where to go from here, other than pay the amount outstanding and plead that I was diligent by employing a tax specialist. (It does refer to that as a mitigating circumstance in the guidelines). My intention is to then claim back the interest from his indemnity insurance. 

It's all deeply distressing for me, as I had hoped to avoid any repercussions from HMRC by employing a professional.