New HMRC computer picks up PAYE errors
You may have heard on the news and read the press that around 45,000 taxpayers are receiving letters from HMRC over the next three months or so, explaining they have paid the wrong amount of tax, with 6 million expected to receive notifications by Christmas. These will be going out to people who have not had to fill in tax returns, but who have relied upon the PAYE system operated by their employers or pension payers to collect the right amount of tax.
The letters refer to the 2008/09 and 2009/10 tax years and it is possible that people have both overpaid and underpaid tax in the two years. These people could receive two letters in the same envelope from the HMRC. The payments could cancel each other out.
According to recent reports, it is estimated that taxpayers have overpaid £1.8bn, but worryingly the underpayments amount to £2bn. These amounts have been flagged up by HMRC’s new PAYE computer.
The letters include a tax calculation (P800), but it is important to understand that this is not a demand for payment; it is merely HMRC’s estimate of the taxpayer’s position. The P800 states at the end of the calculation that the result is “what you have to pay” (or “what we owe you”). That is very positive language for a computer-generated estimate and is likely to mislead people into thinking it is the same as a demand.
Any underpayment may have arisen because HMRC have failed to make timely use of information about you which they have had in their possession. For example, they had received information about your State pension or your company benefits but took no action until now. They delayed and are now playing catch-up and charging you the extra tax which they missed. In such cases you have the right to challenge HMRC under Extra-Statutory Concession A19 and ask them to write off (i.e. not to charge you) the extra tax for previous years.
Alternatively, your employer or pension provider may be to blame on the basis that they have not operated PAYE correctly. They may not have dealt properly with forms such as the P45 or P46 you gave them (when you started in employment or receiving the pension) or dealt correctly with the codes they received from the tax office. If this is so, it is possible to request that HMRC should pursue the employer/pension payer for the tax underpaid and not you.
All tax calculations should be reviewed; the new HMRC computer already has a history of wrong data being put into the system, so it is conceivable that certain figures are incorrect, so they should be checked to your P60s, etc.
If you are owed tax for 2008/09 and 2009/10, it is possible that a repayment is also due for earlier years (currently up to four years worth). However, there are time limits (see below) for making claims, so it is important to act quickly.
Time limits for claiming back tax:
Tax year 2004/05 (year ended 05 April 2005) - you must claim by 31 January 2011
Tax year 2005/06 (year ended 05 April 2006) - you must claim by 31 January 2012
Tax year 2006/07 (year ended 05 April 2007) - you must claim by 31 March 2012
Tax year 2007/08 (year ended 05 April 2008) - you must claim by 05 April 2012
Tax year 2008/09 (year ended 05 April 2009) - you must claim by 05 April 2013
Tax year 2009/10 (year ended 05 April 2010) - you must claim by 05 April 2014
Unfortunately, we suspect that you may have some problems getting through to HMRC on the telephone due to the huge backlog. Accordingly, we are offering a free initial consultation to assess your tax position and can assist in getting any tax due written off, or alternatively negotiate payment of tax by instalments where you cannot afford to pay. As mentioned above, you may be due a tax refund for earlier years, which are not covered by HMRC’s current round of letters.
If you wish to take advantage of an initial free consultation, please call us on 01270 623731 (Nantwich office) or 01625 416380 (Wilmslow office) to arrange for an appointment.
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