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How do I work out if I have paid the correct amount of tax?

Basic

How to work out if I've paid too much tax?

To work out accurately if you have paid too much tax, and whether or not you are due a repayment, you will have to work out your tax liability and compare this to how much you have paid.

What information do I need?

To start with, you will need to gather all the information about your income and tax position. This may include the following documents for the tax year:

  • P60 and / or P45 from an employer or pension provider
  • P11D from an employer
  • Details of taxable state benefits received
  • Bank statements or certificates of tax deducted
  • Building society statements or certificates of tax deducted
  • Dividend certificates
  • Details of rental income and expenses.

How do I work out my tax liability?

We set out an example tax calculation and explained the steps involved in calculating your tax liability on our page, ‘How do I work out my tax?’

To work out your tax liability, you first need to calculate your taxable income. You must include the gross amounts in your calculation, that is, the amounts before tax is taken off.

You may be able to deduct certain expenses or claim allowances against your gross taxable income.

You need to calculate your tax liability using the correct rates of tax, and you can then deduct the tax you have already paid, for example, under PAYE, to work out your tax overpayment or underpayment.

For further assistance you can contact us on 0845 601 3321 or 01308 488066 or via the secure email link on this website. A tax adviser will check your personal situation, help you resolve it or guide you in the right direction.

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PAYE tax calculations 2016/17 (or earlier) – What to do

Employees and pensioners have tax taken off them throughout the year via Pay As You Earn (PAYE). In most cases, this means you pay the correct tax by the end of the year; but not always. This guide explains what to do if HMRC send you a tax calculation (a ‘P800’) for 2016/17 or earlier.

If you work or get a pension, or perhaps both. Tax is taken off under PAYE, but you should still always check your tax, even if you think everything should be straightforward.

Your tax affairs can be complicated if, for example, you:

  • have more than one job or pension or are in receipt of a taxable state benefit like the state pension or carers allowance.
  • change jobs or retire
  • are widowed or lose a civil partner
  • get extra benefits or expenses payments from your employer on top of your cash wages
  • need to claim extra allowances or expenses against your tax

In these and other situations, HMRC might send you a PAYE tax calculation (a ‘P800’) after the end of the tax year if they think you have paid too much or too little tax.

HMRC now send out P800s every year and most are automatically computer-generated. In many cases, too much or too little tax is paid simply because of the way the PAYE system works and no-one is ‘at fault’. But sometimes there will have been an error and this guide aims to help you to understand the difference.

Here we explain what to do if you get a P800 calculation for 2016/17 or earlier:

Will you be getting a calculation?

Not everyone will get a P800 tax calculation. Some people fill in tax returns, so their tax affairs will be sorted out in that way. For many others (HMRC estimate around 85% of people), PAYE works well so that you pay everything you owe during the year. But HMRC might not know everything they need to know to get your tax right, so check your position even if you don’t receive a calculation.

How to check the calculation

HMRC will send notes with the calculation to help you check it. Points to look out for are:

Estimated figures

HMRC might have used estimated figures on the calculation, but not made it clear that they are estimated. Compare all figures to your own records – for example, P60s and P45s from employers and pension payers, P11Ds, and bank and building society statements showing interest and tax deducted.

HMRC sometimes also agree to tax small amounts of income you get ‘gross’ (that is, without tax taken off) through your PAYE code, without you having to fill in a tax return each year. This might apply to rental income or some types of savings interest, for example. HMRC will probably have used an estimate of the income to work out your PAYE code for the year and may have used the same figure in the P800 calculation. Check the amount that HMRC have used is still correct and tell them if it needs changing or if it is no longer relevant (that is, you have stopped getting that type of income).

Combined figures

From December 2015 sources of income will be shown individually making it easier to check. However, earlier year calculations may have more than one source of income  added together in a single line on the calculation. If, for example, you have more than one job or pension, you might have to add up figures from multiple P60s to arrive at the amount shown as ‘PAYE income’.

Spot what might be missing

This can be tricky, as it’s easier to check what is on the form than to work out what is not! But HMRC might not know about some things which could affect your tax calculation.

For instance, you should tell HMRC if you have made pension contributions or Gift Aid donations, particularly if either:

  • prior to the 2016/17 year, you were born before 1938 and your income was over £27,700, 2015/16 (so your calculation shows your age-related personal allowance has been reduced), or
  • you are a higher rate taxpayer (that is, your calculation will show some tax due at 40%).

If you are in receipt of a taxable state benefit, the Department for Work and Pensions (DWP) should have told HMRC about it. But because the DWP do not operate PAYE in the same way as employers or pension providers, you may not have paid the right tax overall by the end of the tax year. The taxable amount of state benefit for the year should therefore be included in your P800 tax calculation.

Take particular care if you have received Employment and Support Allowance because:

  • the contribution-based version of the benefit is taxable,

but

  • the income-related version is not taxable.

Make sure you know which kind you received!

Can you claim any deductions or expenses?

HMRC might not know about certain amounts you are entitled to claim as a deduction from your wages. Some common claims are for using your own car and business travel and other employment expenses.

Can you claim any other allowances?

You might be entitled to more allowances than HMRC have included on the calculation. For example:

  • you might have become entitled to the Blind Person’s Allowance (which you do not have to be completely blind to claim)
  •  your spouse or civil partner might have become entitled to the Blind Person’s Allowance and they can transfer it to you if they are unable to use it themselves because they don’t have enough taxable income to set it against
  • you might have turned 65 or 75 in 2012/13 and be entitled to a higher age allowance for that year (although note that from 6 April 2013 these higher allowances are now only available to those born before 6 April 1948 and 6 April 1938 respectively and from 2015/16 only for those born before 6April 1938, they cease completely in 2016/17)
  • you might have got married or registered a civil partnership and become entitled to Married Couple’s Allowance (but this only applies if one or both of you was born before 6 April 1935)
  • You might be eligible to receive or transfer the marriage allowance
  • You may be eligible for the 0% Savings Rate of the Personal Savings Allowance

Have you been given allowances which you are no longer entitled to?

Equally, you might have lost entitlement to one or more of the above allowances, so your tax calculation could be wrong if HMRC have not taken this into account. The same could apply if you had an extra allowance included in your PAYE code, for example, certain expenses which were deductible against your employment income but would no longer be allowed after you stopped work or changed jobs.

What rate of tax am I paying?

Most people on low- to average earnings pay tax at the basic rate of 20%. But if you are on a low income and have some bank or building society interest, you may be entitled to some or all of your savings interest free of tax. The rules concerning savings income changed in 2016/17.

What to do if you are due a refund (‘overpaid’)

Most people’s reaction to receiving a tax repayment is “thank you very much” followed by a swift trip to the bank to deposit the cheque! But before you bank the cheque, make sure the repayment is correct, because:

  • The P800 is only an estimate, produced by HMRC’s computer. So the calculation is only as good as the data held on the computer.
  • HMRC might have got something wrong, so you could have been repaid too much or not enough!
  • If HMRC repay you too much and you don’t tell them, you could be charged a penalty, if they think you were careless in not spotting it.

Are you owed tax of less than £10 or do you need to make a claim for other tax relief from HMRC?

If you are due a repayment of less than £10, HMRC will give it to you only if you submit a claim – their computer will not automatically issue it.

Also, you might not get a calculation because HMRC’s computer shows that you are not due to receive one – that is, they do not think you owe them any tax, nor that you are due a repayment. But you could be entitled to some extra allowances or reliefs, such as those in section 1 above. In that case, you will need to write to HMRC claiming your repayment.

Earlier years’ repayments

If HMRC thought you were due tax back for any of the years 2012/13, 2013/14, 2014/15, 2015/16 they have probably already sent it to you. But if not, it might be worth checking whether you are due anything back, particularly if you have discovered you have not claimed enough allowances or other tax reliefs in 2016/17 and the same applied to earlier years.

Repayment claims have time limits, so don’t delay. But do be careful – if it turns out that you have not paid enough tax in previous years, HMRC might be obliged to collect it if you prompt them to review your situation. So get your facts straight first.

Time limits for claiming repayments are

Tax year 2012/13 (year ended 5 April 2013) – you must claim by 5 April 2017
Tax year 2013/14 (year ended 5 April 2014) – you must claim by 5 April 2018
Tax year 2014/15 (year ended 5 April 2015) – you must claim by 5 April 2019
Tax year 2015/16 (year ended 5 April 2016) – you must claim by 5 April 2020
Tax year 2016/17 (year ended 5 April 2017) – you must claim by 5 April 2021

In cases of ‘official error’, HMRC might agree to issue repayments for years prior to 2013/14 under their ‘Extra-statutory Concession B41’. This says:
‘...repayments of tax will be made in respect of claims made outside the statutory time limit where an over-payment of tax has arisen because of an error by the Inland Revenue [now HMRC] or another Government Department, and where there is no dispute or doubt as to the facts.’

But such cases are rare and you would need to be able to show what went wrong and set this out in a letter to HMRC. Again, our first additional guide at the end of this article provides an example letter on ESC B41.

What to do if you owe some tax (‘underpaid’)

Most people will, unfortunately, have to pay the tax shown on their P800 calculation. If that is the case, you might have options as to how you pay it back – for example, spreading it over a period of more than one year.

But first, after checking that the figures on the calculation are correct, do try to understand why you did not pay enough tax. This is important in working out whether you fall into one of the limited situations in which you can argue that you should not have to pay the bill.

Questions to ask yourself:

Did my employer or pension provider make a mistake?

It is possible that the underpayment has arisen due to your employer or pension payer not operating PAYE correctly. For example, they may not have applied the tax code that HMRC sent to them. If this is the case, HMRC should first seek the tax from the employer or pension payer, not from you.

Read our Employer or pension payer error guide

Did HMRC make a mistake or fail to use information to get my tax right?

The underpayment could have arisen because HMRC have failed to make timely use of information about you which they have had in their possession. In such cases, you can consider asking HMRC to write off (that is, not to charge you) the tax under their Extra-Statutory Concession A19 (ESC A19).

But note that ESC A19 usually only applies to underpayments for tax years ending more than 12 months ago - for example, you cannot normally use ESC A19 to ask for tax owing for 2016/17 to be written off if HMRC are advising you of the underpayment in, say, June 2017.

However, if HMRC have persistently got something wrong year after year, they do have the power to write the tax off for all years up to and including 2016/17. So if you underpaid tax in earlier tax years, and an underpayment in 2016/17 occurred for the same reasons, ESC A19 might apply dependent upon your individual circumstances.

Read our Extra-Statutory Concession A19  (HMRC error) guide

*Important note* about making payments towards the tax bill if you are claiming ESC A19

If you are claiming that ESC A19 applies, HMRC might still ask you to start paying towards the tax they say you owe before your case is resolved. If this happens, make it clear that you have not yet agreed that you owe it and ask them to wait until your ESC A19 complaint has been answered before you start making payments.

If HMRC are insistent that you pay something, do not repay the tax in full (as HMRC will then argue that ESC A19 cannot apply as there are no arrears of tax). If you agree to start making payments towards it, make it clear that these are only ‘on account’ and you expect them to be repaid to you if your claim is eventually agreed.

We suggest you get this agreement with HMRC in writing to protect yourself in the event of a future query. At the very least, if the agreement is made over the telephone, write down the date and time of the call, the name of the person you spoke to and what was said on the call.

Was I misinformed by HMRC?

HMRC set themselves high standards and if they fail in maintaining those standards they may write off tax (but be aware that this is only likely to be in few cases).

If you are not entirely happy that HMRC have done everything correctly then you should read our complaints’ guide.

But what if you do have to pay the underpaid tax?

If, after considering the above, you decide you are not within one of the limited circumstances of challenging your underpayment (or if you have made such a challenge and found you can take your case no further) you will have to agree with HMRC how the tax will be paid.

Again, we set out the considerations below.

How will the underpayment be collected?

If you owe under £3,000 and you have sufficient income from which tax can be deducted under PAYE in 2018/19, the underpayment will be included as a deduction from your allowances in 2018/19. HMRC will try to collect the underpayment in one year.

If it cannot be collected through your PAYE code, HMRC will contact you about arranging to pay.

What if I cannot afford to repay?

If collection of the underpayment via your PAYE code or payment directly to HMRC will be difficult for you financially, contact HMRC as soon as possible to negotiate. You may be able to arrange to have the tax coded over a longer period or to pay in instalments, although there could be an interest charge if you spread the payments.

The longest that HMRC are likely to spread the repayments over, either via your PAYE code or by instalments, is three years. The actual agreement you can make with them is likely to depend on your circumstances and how much you can afford to pay. For payment periods over 3 years you will probably be asked to provide your income and expenditure information.

If paying back the tax is likely to cause you extreme hardship, do make this clear to HMRC when you contact them. For example, this might apply if you are on means-tested benefits with no savings and cannot foresee ever being able to repay the tax. You may have to provide some evidence of your circumstances, but HMRC might then agree to put off collecting the tax for a period or to write it off altogether.

What if I am on means-tested benefits?

If you are claiming means tested benefits ask HMRC to consider the hardship rules, they may write of the underpayment. If this fails contact Tax Help for Older People.

If you are on a low income, it is quite possible that the extra tax you are paying will affect your entitlement to means-tested benefits. You should contact JobCentre Plus, The Pension Service and/or your local authority to advise them of your reduced income due to the tax you are paying and ask how it affects your entitlement. Alternatively you can seek a benefits review from Citizens Advice.

For example, low-income pensioners who find that extra tax repayments cause financial hardship should investigate whether they are entitled to claim Pension Credit (or extra Pension Credit, for existing claimants), as entitlement to this benefit should be calculated on your after-tax income.

Note, however, that paying more income tax does not make any difference to your tax credits entitlement but might affect universal credits so you should talk the DWP benefits team .

Calculations for earlier years

HMRC are still issuing, in a dwindling number of cases, P800 calculations for earlier years – that is, for 2014/15 and before.
If it shows that you have not paid enough tax, check the year carefully. HMRC can now only go back four years, so 2013/14 is now the earliest year for which they can issue a P800, unless the loss of tax was brought about by careless or deliberate action on your part. So any calculation for the year to 5 April 2013 (the 2012/13 tax year) is now likely to be out of time.

General guidance on contacting HMRC and getting further help

You will need to contact HMRC if:

  • you think the calculation is wrong – as above, you must let HMRC know if you think they have repaid you too much
  • you need to claim extra tax reliefs or allowances
  • you need to ask for a full explanation if you do not understand the calculation.

HMRC’s helpline number is 0300 200 3300 (textphone for those with hearing or speech impairment, 0300 200 3319). When telephoning, have the calculation to hand as HMRC might ask you to confirm your National Insurance Number and answer some other questions before discussing it with you.

Always keep a record of:

  • the date and time of your call
  • the name of the person that you spoke to, and
  •  a note of what you said and what HMRC said to you.

If you prefer, you can write to HMRC at the postal address on the calculation. HMRC might also ask you to write to them to claim extra reliefs or allowances.

Whenever you write to HMRC:

  •   include your National Insurance number and the HMRC reference taken from the P800
  •   include your full name and address
  •  either:
  1. explain what you think is wrong and why;
  2.   explain what additional reliefs or allowances you think you are entitled to; or
  3.   ask what figures you require an explanation of (example letters to help with this can be found in the fifth guide at the end of this article)
  • sign and date the letter in ink
  • keep a copy of the letter and any supporting information you send with it
  • clearly state if any enclosed documentation is original and you wish it to be returned to you
  • obtain proof of postage.

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Employer & Pension provider error

Employer or pension payer error guide

If HMRC calculate that you have underpaid tax but you think that the underpayment arises because your employer or pension payer failed to operate PAYE correctly, you have the right to challenge whether HMRC should ask your employer or pension payer to pay it instead.

Here, we aim to provide a guide to the law and advise you what to do next.

The guide is divided into the following sections:

  1. Background and an overview of the law
  2. What might your employer or pension payer have done wrong?
  3. What should you do?
  4. What happens next and information about your rights
  5. Key messages if you are confused or worried

1. Background and an overview of the law

PAYE is a three-party process, involving:

  • HMRC
  • those making payments within its remit (usually employers and pension payers), and
  • the employee/pensioner recipient.

Its operation is set out in law, together with each of the parties’ responsibilities. Information can pass between all three and sometimes the system breaks down. The issue considered in this guide is whether the employer or pension payer has failed to do something they are required to do by law – for example, not acting on instructions received from HMRC or not following the correct procedure when taking on a new employee or pensioner.

When PAYE works properly and a correct code has been operated throughout the year, the tax paid should broadly equal the tax due. There can be small ‘rounding’ discrepancies of just a few pounds or pence but generally these are ignored.
Basically, those making payments under PAYE are required to follow the rules and deduct the right tax before paying the ‘net’ (after-tax) amount to the payee.

Mistakes can of course happen. Forms can get lost in the post (although these days, most exchanges between employers/pension providers and HMRC are done electronically) and there can be breakdowns in communication. It can be a very difficult task for you, the employee or pensioner, in receipt of an underpayment ‘P800’ calculation from HMRC to work out why it has arisen. Usually, all you know is that you thought everything was fine until, out of the blue, you have been told otherwise.

Each of the three parties in the process could have been at fault:

  • You might not have told HMRC about something affecting your tax affairs
  • HMRC might not have acted upon information in their possession to get your tax right, or made some error in doing so
  • Your employer or pension payer might not have followed the rules correctly.

In some cases, there might be a far more serious situation, where the employer or pension payer has not simply made an error, but they have been generally irresponsible in the way that they have operated PAYE or have deliberately not operated PAYE correctly.

2. What might your employer or pension payer have done wrong?

HMRC records can often show whether or not an employer or pension payer has taken a range of steps to operate PAYE in accordance with HMRC’s instructions. HMRC should not issue a tax calculation without checking why an employer or pension payer has acted inappropriately.

You might think to ask your employer or pension payer what has gone wrong. But be very careful - this is not the role of the taxpayer and is unlikely to get a favourable (or a friendly) response. We recommend that you ask HMRC to investigate, as they are in a much stronger and better position to do so.

But when you are checking the P800 calculation, you should bear in mind the types of errors that employers or pension payers do make:

  • They may not have operated the PAYE code issued by HMRC. Have a look at any coding notices you received from HMRC and compare them to the ‘final tax code’ box on the P60s you should have received after the end of the tax year – if things have been done right, they should usually match.
  • Did you hand in a P45 when you started a new job? Did the code used by your new employer match the one on the P45?
  • If you did not have a P45 to hand in when you started a new job, were you asked for information so that your employer could inform HMRC via a starter form (old P46)?, Do you think your employer used the right tax code based on the answers you gave?
  • Your P800 calculation might have included a note to say that you have been given more than one personal allowance on different sources of income. There are a number of ways this can happen, but it could be an indication of employer or pension payer error.

Note that prior to 2015/16, PAYE sources of income are grouped together on a P800 under the description PAYE income. You may need to add up the information on several P60's or P45's to arrive at the figure produced by HMRC. From 2015/16 income sources should be listed individually and should match your P60/P45 for that source.

What should you do?

If you suspect any of the above situations apply to you or that there has been some other error by your employer or pension payer, either deliberately or perhaps by way of poor administration, you should contact HMRC. You can telephone them, or alternatively write a letter.

HMRC’s guidance says that you should give details of what you think has gone wrong. You might of course not understand the detail, but still feel something has gone wrong which is not your fault. In that case, we recommend you ask HMRC if they have considered whether your employer or pension payer is in any way at fault. If they do not feel that there has been any error on the employer or pension payer’s part, you should get HMRC to explain why the underpayment has arisen. (It is unlikely that you have will have received an adequate explanation on the P800 issued by the computer – it might just say something bland like ‘The reason for the underpayment is given on the enclosed sheet’, but the only other sheet is the calculation itself.).

4. What happens next and information about your rights

It is up to HMRC to review the situation and then tell you of their decision, which will be one of the following:

  • That there is no employer or pension payer error, in which case they should tell you why they have reached that conclusion. You should insist that they give you a full explanation of how they think the underpayment has arisen and consider your next move – for example, whether you wish to claim for the tax to be written off under other provisions covered in our guides.
  • That the employer or pension payer is at fault and they are pursuing them for the tax instead of you – in which case you should not have to pay HMRC the under-deducted tax, but your employer might seek to recover the amount from your wages. Whether your employer can do this is a matter of employment law and not one upon which we can advise.
  • That the employer or pension payer is at fault but HMRC have concluded from their investigations that they acted ‘in good faith’ and ‘took reasonable care’ to operate PAYE correctly. When considering whether an employer or pension payer has taken reasonable care HMRC should look to see how that employer or pension payer has been handling the PAYE obligations of other employees or pensioners. Also, whether returns have been accurate and on time and whether the error in your case has been replicated with others. It would be reasonable for you to ask to be told the extent of HMRC investigations.
  • That the employer or pension payer deliberately failed to deduct the right amount of tax from you and you knew about it.

In the latter two situations, HMRC will need to issue a formal notice (a ‘Direction’) to both you and your employer or pension payer that they think you should pay the tax. You then have a right to appeal in writing to HMRC within 30 days against their Direction, either by way of HMRC’s internal review system or an independent tribunal. More information on appeals generally can be found in the ‘When things go wrong’ section of this website.

It is also possible that your tax underpayment has arisen for more than one reason – in which case, HMRC might consider that part of it is due to an employer or pension payer error, and part for other reasons. They could then treat each part of the tax bill differently – for example, agreeing to pursue your employer or pension payer for part of it and still asking you for the balance.

5. Key messages if you are confused or worried

We would not be surprised if by now you are confused.

The key point is that you make contact with HMRC either by telephone or in writing to raise your concerns over the calculation you have been issued, and not to be easily deterred if you cannot get through or are initially declined what seems fair treatment.

When contacting HMRC, keep a note of your conversation and copies of any correspondence and papers sent to them, together with proof of postage.

As noted above, you do have rights and should not be afraid to exercise them. Indeed, LITRG campaigned successfully back in 2003 for HMRC to change the law so that appeal rights were included for taxpayers where their employer or pension payer has made an error.

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HMRC error (ESC A19)

Extra-statutory Concession A19 - 2016/17 and earlier

If HMRC have delayed using information in their possession, and this results in you paying too little tax, HMRC will sometimes write off the arrears of tax under Extra-Statutory Concession (ESC) A19. This guidance is to help you consider whether you can challenge HMRC under this policy.

1. What is ESC A19?

Extra-Statutory Concession A19 is a practice developed by the former Inland Revenue (now HMRC) to cover situations where an error or administrative failure of theirs resulted in someone paying too little income tax or capital gains tax.

Devised to ensure fairness for taxpayers where the strict law says that they owe tax but it would be unfair to pursue payment, its use can alleviate worry and concern for vulnerable taxpayers presented with large, unexpected demands for arrears of tax.

The concession provides for tax to be written off (that is, not collected) in certain circumstances. It has a factual element and a subjective element.

It is generally easy enough to work out whether the purely factual conditions are satisfied. Arrears of tax must have arisen because HMRC have delayed in using information about you which they have had in their possession, and the arrears must usually be at least one year old. Sometimes, the concession can be used to write off arrears which are less than a year old where HMRC’s failure to make use of information has been persistent.

There is an ongoing debate with HMRC about what they consider to be ‘information’ for this purpose but we understand that HMRC have agreed to treat P14 information from employers as relevant for the purposes of the 2012/13 tax year onwards, though they did not treat it as such for earlier years.

The subjective element is less easy to satisfy: whether HMRC write off the tax depends on whether they think it was reasonable for you to have believed your tax affairs were in order (see heading 3 below).

2. Some examples of situations which may give rise to tax being written off

So when might you be justified in asking for your tax to be written off under ESC A19?

First, bear in mind that A19 usually only applies to underpayments for tax years ending more than 12 months ago - for example, you cannot normally use ESC A19 to ask for tax owing for 2016/17 to be written off if HMRC are advising you of the underpayment in, say, June 2017.

However, if HMRC have persistently got something wrong year after year, we would expect them to consider writing the tax off for all years up to and including 2016/17 unless they corrected the error before the end of the 2016/17 tax year. So if you underpaid tax in earlier tax years, and an underpayment in 2016/17 again occurred for the same reasons, A19 might apply. It might help to ask yourself:

  • Did HMRC have all the information they needed to get your tax right in the past? HMRC should have received details of taxable state benefits from the Department for Work and Pensions (DWP) and pay and pension details from employers/pension payers.
  • You might have provided HMRC directly with information that they have failed to use – by personal visit to an Enquiry Centre, by letter or telephone call.
  • Particularly where you have various sources of income, HMRC should send you ‘P2’ Notices of Coding each year (prior to 2016/17 one for each source) – did you receive them?
  • Perhaps you contacted HMRC about your tax codes and they failed to act on the information you provided or told you everything was correct?
  • Prior to 2012/13, When you reached state pension age, or shortly before, did HMRC send you a form P161 asking for details of your income in retirement so they could work out your codings? If they did, did you fill it in and return it; and did HMRC then fail to act on that information?

3. The ‘reasonable belief’ test

For ESC A19 to apply, it must have been reasonable for you to have believed that your tax affairs were in order. The question is not whether you did in fact believe that your affairs were in order, but whether it was reasonable for you to believe they were.
Importantly, this ‘reasonable belief’ test should be applied by looking at you as an individual. HMRC’s internal guidance requires their officers to consider the following factors when applying the reasonableness test:

  • The size of the arrears and what caused them
  • What information HMRC has sent the taxpayer over the years, such as coding notices, explanatory leaflets, etc
  • Whether HMRC has given the taxpayer wrong or misleading advice
  • Whether HMRC’s actions have muddled the case or made it hard to follow (for example, issuing multiple or incorrect coding notices)
  • Whether the taxpayer has been professionally represented (in which case it may be harder to argue that they reasonably thought their affairs were in order)
  • Reasonable belief may change over time (ie it may be reasonable for a taxpayer to think their affairs in order in one year, but if circumstances change the question may have to be considered again)
  • The taxpayer’s likely level of understanding of tax, taking into account factors such as the taxpayer’s background, age, state of health, etc.

The Manual instructions conclude: ‘if the issue is so finely balanced that it is hard to form a judgement, always give the taxpayer the benefit of the doubt’.

So what factors should be considered? Drawing on the criteria set out in the HMRC official manual, some examples are:

  • If you are a pensioner and have been employed all your working life, with PAYE taking care of your tax, it is perhaps reasonable that you should not have understood all that might go wrong with your taxes on retirement, or failed to identify errors in your tax across multiple sources of income.
  • You might have received numerous tax coding notices which you found incomprehensible or no coding notices at all.
  • In recent years, the information HMRC provide with coding notices has dwindled, so you may have had difficulty checking them.
  • Your age, state of health, other problems in your life (such as a bereavement, or ill-health of a close family member), educational background, literacy and numeracy skills, and disability all might have had an impact on your ability to cope with tax matters.

What should you do?

If you think your situation fits in with the concession, make contact with HMRC as soon as possible – their telephone number and address will be given on the tax calculation you have received.

If you think they have made mistakes and you have evidence to support that, set out the details in your letter or when you telephone. Whenever you contact HMRC, keep a record (that is, keep a note of the date and time of telephone calls, to whom you spoke and what was said; and keep copies of any letters and documentation sent to HMRC with proof of postage).

Make sure you mark your letter as claiming ESC A19 – we have provided an example letter in the appendix below to give you an idea of what to write, subject to tailoring it to your own circumstances as appropriate.

We also suggest you make it clear when you contact HMRC that you wish them to suspend any action to collect the tax they say you owe while they review your case.

5. What happens next? And information about your rights

HMRC will, in due course, come back to you with their decision. There are several possibilities here:

  • They might have investigated your case and considered that your employer or pension payer is at fault and they should seek to recover all or part of the tax from them. HMRC’s guidance (see appendix below) says that they should consider this point as part of their ESC A19 review. At this point you should read our guide to Employer or pension payer error.
  • They might decline A19 treatment.
  • They might decide to allow A19 in part and write off part of the tax.
  • They might allow A19 treatment in full and write off all of the tax. If they do agree to write off the tax, check your PAYE coding notices to ensure that HMRC have not still included it for collection.

If they decline A19 or only allow it in part, you do have other options to get your case reviewed further. First, you can submit a formal complaint asking to have your case reviewed again, giving details of why you feel you have received inadequate help and care from HMRC.

Do not succumb to temptation to pay off any PAYE arrears before your A19 application has been considered. The reason is that if you clear the arrears, HMRC will claim that there are no longer any arrears in respect of which ESC A19 can apply, and refuse to consider the concession. If you do decide to pay something towards the arrears, make sure HMRC know that it is a ‘payment on account’ and made without prejudice to your A19 claim. We suggest you do this in writing.

Read our ‘How to complain’ guide on the ‘When things go wrong’ section of this website. This explains more about how to complain to HMRC and onwards to the Adjudicator and Ombudsman if you are still not satisfied.

The only route to the courts in A19 cases is to seek what is called a ‘Judicial Review’, but unfortunately this is beyond the means of most ordinary taxpayers, particularly as it carries with it the downside of HMRC potentially seeking to recover their costs from you should your case fail. If you do wish to consider this route, you would need to take advice and act quickly as there are strict time limits to request the review which apply from the date of HMRC’s decision.

APPENDIX

Extra-statutory Concession A19 - The full text of the concession is as follows:

A19. Giving up tax where there are Revenue delays in using information

Arrears of income tax or capital gains tax may be given up if they result from HMRC’s failure to make proper and timely use of information supplied by:

  • a taxpayer about his or her own income, gains or personal circumstances
  • an employer, where the information affects a taxpayer's coding; or
  • the Department for Work and Pensions, about a taxpayer's State retirement, disability or widow's pension.

Tax will normally be given up only where the taxpayer:

  • could reasonably have believed that his or her tax affairs were in order, and
  • was notified of the arrears more than 12 months after the end of the tax year in which HMRC received the information indicating that more tax was due, or

In exceptional circumstances arrears of tax notified 12 months or less after the end of the relevant tax year may be given up if HMRC:

  • failed more than once to make proper use of the facts they had been given about one source of income
  • allowed the arrears to build up over two whole tax years in succession by failing to make proper and timely use of information they had been given.

HMRC Guidance

HMRC’s guidance to customers on their website: http://www.hmrc.gov.uk/esc/esc.htm
HMRC’s internal staff guidance can be found in their procedural manuals. It is too long to reproduce here, but if you wish to read it all, you can find it on their website: http://www.hmrc.gov.uk/manuals/pommanual/paye95000.htm

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