HMRC Investigation time limit

chutney51

Hi,
A bit complicated this so I hope I'm in the correct forum.

My partner retired a few years ago after 35 years as a PAYE employee.
After her first year receiving her pension from that employer, she cashed in a SIPP in the second year. This meant her income was £103k for that year as opposed to the normal pension of around £21k.

She filled out a self assess form for that year and returned it on 4th July 2022 with the extra income showing. HMRC already knew about the extra money anyway (presumably from the SIPP provider).
She received a reply saying all was correct and even had a refund of £18.

 However, on 9th January 2024 she received a letter saying HMRC "believe your tax return for the year [2022] is wrong." Further "we hold information to suggest there are errors...in your self assess return".

They are now chasing payment for about £12k and are charging interest.

 I have been told by TaxAid that they can only investigate for up to 12 months after the self assess form was returned. As it was returned on 4th July 2022, I believe this would have expired on 3rd July 2023. Google says they can investigate for up to 4 years if there are errors on the form, but there aren't.

 We have asked for a copy of the self assess form that she sent but no luck so far. Yes, we should have kept a copy!

Any help is greatly appreciated.

eskbanker

chutney51 said:

She filled out a self assess form for that year and returned it on 4th July 2022 with the extra income showing. HMRC already knew about the extra money anyway (presumably from the SIPP provider).
She received a reply saying all was correct and even had a refund of £18.

Was this accompanied by a full tax assessment calculation showing the workings of the derivation of the £18?

Does she have access to her online personal tax account?

chutney51

Thanks for the reply. 
My partner had a letter from HMRC dated June 2022 (before she filled out a tax return) which itemised her normal pension and the extra SIPP payment. So they knew about it before she even filled in a self assess. 

She then wrote down the same info and sent it back electronically. We don't have a copy.
 Yes there was an underpayment but she did not hide anything.

It looks to me like they missed it and are now chasing it. 
What's worse is they also want interest backdated. Seems unfair as it was their oversight.

chutney51

Thanks eskbanker.
You ask:

"Was this accompanied by a full tax assessment calculation showing the workings of the derivation of the £18?"

Not sure. It was 2 years ago.

"Does she have access to her online personal tax account?"

Yes. We cannot see any detail for the year in question though, only that she filled out a self assess for the year in question.

[Deleted User]

A potential underpayment of £12000 suggests £30000 of income difference. 

So we have the usual scenario where HMRC has details but won’t reveal what they are while the taxpayer can’t determine what is incorrect. 

Professional assistance is required.

chutney51

"Can you explain what you mean by "Yes there was an underpayment"?"

She paid the correct tax on her "normal" pension. However, the SIPP provider only charged tax at 20% on the SIPP transfer. As this was over £80k she was by now in the 40% bracket, hence the tax should have been higher. 

However, as I say she reported this in 2022 (self assess). She never withheld any info. 
HMRC have the same info as in 2022, but are coming back for more tax.

Dazed_and_C0nfused

What did the original Self Assessment calculation show the liability as (or refund due) for 2021-22?

[Deleted User]

[Deleted User] said:

chutney51 said:

"Can you explain what you mean by "Yes there was an underpayment"?"

She paid the correct tax on her "normal" pension. However, the SIPP provider only charged tax at 20% on the SIPP transfer. As this was over £80k she was by now in the 40% bracket, hence the tax should have been higher. 

However, as I say she reported this in 2022 (self assess). She never withheld any info. 
HMRC have the same info as in 2022, but are coming back for more tax.

That seems to be something different to your original "we hold information...".

You seem to be saying that some PAYE was withheld but because of she has a higher marginal tax rate, she actually owes more tax.  That makes sense. And that's where the self-assessment system comes in.  She has to report her income, calculate the tax she has to pay and then she has to pay it.  The tax system expects her to pay up by 31 January rather than for her to wait until HMRC to ask her to pay the amount due. 

The online system will do the calculations and set out what tax there is to pay.  She might have seen that before she submitted her tax return.  She can also see it today by going to HMRC's online self-assessment system, clicking through to the right tax return and then "View and print your full calculation".  That shows how much her tax liability is ("Total income on which tax is due") and then deducts the tax that was actually withheld through PAYE.  Towards the bottom of the calculation will be the difference between the two and that's the extra tax that should have been paid by 31 January after the end of the tax year. 

HMRC chasing up this money now has nothing to do with HMRC normally have a year to look into a self-assessment tax return.

If that was it, HMRC would just be saying that she owes £x (including interest for late payment of the tax).  They would not say "we hold information...".  That suggests HMRC think that there is something extra.  For example interest received that wasn't put on the tax return.  If they do hold other information, then they (probably - terms and conditions apply) have up to four years to do something about it.

Good points. There may indeed be a c£12000 underpayment arising from what was submitted but, evidently, HMRC hold some information which would appear to have been omitted from the return. 

Two separate issues.

chutney51

Hoeing, Did you read my post? 

"You had no qualms about keeping quiet about the underpayment of tax though. How did it arise? Must be pretty apparent."

She declared ALL income back in 2022 by her self assess form. She received a letter saying all good, here's an £18 refund. She didn't know there was an underpayment. She paid tax on the normal pension and tax on the SIPP money. At no point did she know there was an underpayment until January this year.
HMRC knew about her income from her tax return AND the info from the SIPP provider.

Why do you make assumptions like that?

chutney51

Dazed_and_C0nfused said:

What did the original Self Assessment calculation show the liability as (or refund due) for 2021-22?

£18 refund. 

Dazed_and_C0nfused

chutney51 said:

Hoeing, Did you read my post? 

"You had no qualms about keeping quiet about the underpayment of tax though. How did it arise? Must be pretty apparent."

She declared ALL income back in 2022 by her self assess form. She received a letter saying all good, here's an £18 refund. She didn't know there was an underpayment. She paid tax on the normal pension and tax on the SIPP money. At no point did she know there was an underpayment until January this year.
HMRC knew about her income from her tax return AND the info from the SIPP provider.

Why do you make assumptions like that?

So if she declared all income what is it you think can mean HMRC believe there is extra tax to pay?

Did she claim some relief she wasn't entitled to?

Something doesn't make sense here as £12,000 is a significant amount to owe from a HMRC enquiry (if it does turn out to be owed).