Ever since the tax calculation “story” broke early in September we have issued guidance for people who do not have tax advisers to turn to; not that many people with tax advisers will be receiving calculations as the advisers will have ensured that the years 2008-09 and 2009-10 are correctly closed off already.
But for those who are trying to deal with this issue on their own we have updated our step-by-step guide to dealing with PAYE tax calculations – the ‘P800’.
The brown envelope encloses P800 calculations – what do you do?
As we have said before, don’t panic. Try and understand the calculations, even if they are badly designed and unhelpful.
Two leaflets now accompany the P800 calculation:
These attempt to explain what the figures on the P800 mean and what extra information HMRC might need to adjust the calculation if need be.
Remember, you have rights. This help-sheet attempts to set out how you might challenge the calculation and how HMRC will collect the tax if you are unsuccessful.
Both of these documents take on board many of our criticisms of the original P800 notes (included in our original step-by-step guide
). We thank HMRC for listening, even if we feel that they have not gone far enough to guide the average unrepresented taxpayer.
Step One – check the figures
Look at the income figures that HMRC have used on the P800 calculation. Can you understand them? Don’t accept them at face value. In some cases HMRC have used estimates, but shockingly they will not have indicated that this is what they have done. For example:
- The State pension they have included may be an estimate, even though they could have got the accurate figure from the Department for Work and Pensions.
- If they have shown figures for savings interest or rents together with a related tax figure, this too may be based on historical information and incorrect. Again they will not give you a clue that this may be so.
- They may well have lumped together all your job or pension sources and called them “PAYE income”. Try to untangle this figure, but if it is difficult write to them or ring them and tell them to write to you with a full explanation.
Step Two – check what is missing
Consider the expenses deductions and allowances that may be due to you. Look at both help-sheets for this purpose.
If you are a pensioner of 65 or over with an income exceeding the figure at which your higher age allowances get progressively withdrawn (£21,800 for 2008-09 or £22,900 for 2009-10), it is quite likely that your calculation is incomplete and you need to take action. For example, if you have made pension payments or gift aid donations or have received taxable investment income which are either not included at all in the calculation or incorrectly shown.
Step Three – contact HMRC if necessary
If steps one and two have shown up something you are unsure of or that you think needs adjusting, now is the time to contact HMRC using the details provided on the calculation and get an explanation or ask for it to be amended. Then wait for the revised calculation to come through before considering your next move.
If steps one and two have arrived at correct figures, the tax chargeable is likely to be shown correctly. But things can go awry, particularly if you are entitled to the Married Couple’s Allowance, in which case you should again contact HMRC to ask for an explanation if you don’t understand the calculation.
If calculations are received for both years then any under or overpayment from 2008-09 will be carried forward to 2009-10 and the actual amount that you owe, or that will be repaid to you, is therefore the figure at the end of the 2009-10 calculation.
Once you know the ‘bottom line’, you can move on to consider whether you can challenge whether the tax should be collected or not.
The four challenges
Once you have established that you understand the calculation itself and assuming it is showing an underpayment, what can you do now? There are four main challenges to HMRC which can set aside a part or the whole of the underpayment.
Out of time
At the same time as HMRC are carrying out their reconciliations for 2008-09 and 2009-10 we have seen examples of HMRC taking the opportunity to produce calculations for earlier years for which they have no entitlement in law. In most cases, they are barred from collecting tax which they have not assessed within four years of the end of the relevant tax year.
Harry is 75. Since retiring from his main job at age 65 he has been in receipt of a state retirement pension, an occupational pension and earnings from a part-time job. Both his occupational pension provider and his employer operate PAYE on his pension and his earnings respectively. Early in 2010 he discovers that he has been undercharged tax because both his employer and his pension provider have given him credit for the personal allowance (though only the basic level). On 1 May 2010 HMRC assess him for the underpaid tax going back 10 years.
As the assessment is dated 1 May 2010, any underpaid tax shown on it for the tax year 2005-06 and any earlier years are time-barred.
So if HMRC are now, for the first time, notifying you that you owe tax for years ending before 6 April 2006, your recourse is to appeal against the assessment on the grounds that it is out of time. Remember to do this within the 30 day time limit (although there are provisions for late appeals). Send a letter to HMRC at the address on the front of the calculation, remembering to keep a copy of it and send it by registered post or ask at the Post Office for a receipt as proof of postage. Mark your letter ‘appeal’ at the top and give your full name, address, national insurance number and any other reference number from the P800.
Extra-statutory concession A19
The 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 have had information about your State pension or other benefits but have taken no action until now. This delay provides a basis for HMRC to write off the tax arrears, provided certain other conditions are in place. You can find out whether this might apply to you by referring to our A19 guide (a link to which can be found at the bottom of this article).
Employer or pension payer error
It is possible that the underpayment has arisen through your employer or pension payer not operating PAYE correctly. They may have dealt incorrectly with forms such as the P45 or P46 you gave them when you started in employment or first received the pension, or with the codes they received from the tax office. If there is a possibility of this being the case then HMRC should seek the tax from the employer or pension payer and you should read our Employer or pension payer error guide (a link to which can be found at the bottom of this article).
Misleading HMRC information and complaints
HMRC set themselves high standards and if they fail in maintaining those standards they may write off tax. If you are not entirely happy that HMRC have done everything correctly then you should read our Misleading HMRC information and complaints guide (a link to which can be found at the bottom of this article).
In some cases elements of all four of the challenges can be made. It is also important to realise that if HMRC refuse any of those challenges that is not the end of the road. In all these cases there is a route to an independent body which can review HMRC’s decision and decide to uphold, overturn or adjust it.
What are your chances of success?
Although we cannot of course guarantee that following our guidance will prove successful, you should make sure that you do all you can to check the tax calculation and exercise the rights you have.
By way of illustration for those in the pensioner population, in one of our earlier articles we indicated that we had taken 10 random cases which had arrived with TaxHelp for Older People. To date, four of those cases have been accepted as being within A19 and written off, a further five have prompted HMRC to engage with employers/pension payers and in the last case more information is being sought from a pensioner. The fate of these six remaining cases is in the balance and we will provide a further update in due course.
Even if at the end of the day there are arrears of tax, you should not be asked to pay if the amount is £300 or less in either or both of 2008-09 or 2009-10. These amounts have been set as “tolerance levels” for those years and regarded as not worth the cost of collection. Check that you have been given those tolerances, being particularly vigilant if for example your calculation started off showing you owed more than £300 but you were able to claim extra reliefs or have the calculation adjusted taking you down to £300 or below.
If you do owe more than the tolerance, it is likely that the underpayment will be collected under PAYE over the year starting in April 2011. But if this is not possible because you owe too much, or a PAYE source has ended, or it would cause you hardship, there are further avenues to explore.
For example, how will paying the tax affect your entitlement to means-tested benefits, such as Pension Credit, Housing Benefit, Council Tax Benefit, Jobseeker’s Allowance or Employment and Support Allowance? Entitlement to these benefits is based on your net income after tax payable, so if you pay more tax that can increase your benefits from the Department for Work and Pensions.
We provide our guide on Paying Up as a separate document (a link to which can be found at the bottom of this article).
We understand that HMRC are going to send out some 1.4 million underpayment calculations and over 4 million overpayment calculations between now and Christmas. Remember that not everyone will get a calculation, so don’t panic; but if you are worried and wish to know your position now, you can ring them and ask to be told what your reconciliation shows (keep a note of your call).
Do not ask to see what your position is for years prior to 2008-09 without being certain that there is good news in any reconciliation for those years. But if you understand why tax has been overpaid and it is likely that the same situation existed in earlier years you could ask for those years to be reviewed as well. If you get it wrong your overpayment for the later years may disappear and you could even find you owe tax.
Finally some people will receive cheques in the post. Many of those repayments will be wrong too. HMRC offer the following advice to people who receive notice of an overpayment:
“If you have received an overpayment you should bank your cheque. You do not need to contact us.”
However, should you spot that HMRC have made an error in your favour in the repayment, you must tell them.
Links to our further guides
Extra-Statutory Concession A19
Employer or pension payer error
Misleading HMRC information and complaints
Contact: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)