Nearly six million people in the UK have paid the wrong amount of tax.
About £2bn was underpaid via the Pay as You Earn (PAYE) system in the past two years, with about 1.4 million people owing an average of £1,500 each.
But £1.8bn has also been overpaid and some 4.3 million people will get a rebate because they have paid too much.
A new computer system has allowed more discrepancies to be identified, but HM Revenue and Customs said the "vast majority" of tax bills were correct.
The number of people affected by over or underpayments is also higher than usual because HMRC is currently reconciling two years of PAYE contributions at the same time, rather than just one.
To read more http://www.bbc.co.uk/news/uk-11186397
PDF version The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation to give a voice to those who cannot afford to pay for tax advice.
We gather evidence of problems in the tax system for those on low incomes. We then work with the relevant authorities to try to resolve them. Our aim is to persuade politicians and the Revenue to make the tax system simpler and fairer.
There is a misconception that those on the lowest incomes have simple financial affairs. This is a fallacy, especially when those on the lowest incomes have to deal with many different government departments and cope with the failure of those departments to link coherently at policy and operational levels.
This site also tries to provide reliable tax and related benefits information so that people who want to try and help themselves can do so.
We target our help towards five categories of people who are apt to encounter difficulties with the tax system. These are pensioners, students, low-income workers, disabled people and migrants to the UK. We take an income of around £15,000 as a low income for our purposes.
Throughout this site we can only offer general guidance on tax topics and you should always obtain specific advice before taking any action.
For information regarding the legal basis on which we provide assistance and advice including areas such as data protection and confidentiality please see our legal page.
EP6601 - Underpayments/Overpayments: Extra statutory concession ESC A19
"Arrears of income tax and capital gains tax may be given up if they result from the Inland Revenue's failure to make proper and timely use of information supplied by
- a taxpayer about his or her own income, gains or personal circumstances, or
- an employer, where the information affects a taxpayer's coding, or
- the Department for Work and Pensions (formerly DSS), 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 the Inland Revenue received the information indicating that more tax was due, or
- was notified of an over-repayment after the end of the tax year following the year in which the repayment was made
In exceptional circumstances arrears of tax notified 12 months or less after the end of the relevant tax year may be given up if the Revenue
- 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"
If you think that HMRC should have already collected the tax due in your Tax Calculation (P800) because the information had already been provided to them and HMRC have failed or delayed to use this information, then in some limited circumstances they may agree not to collect it.
An ‘Extra Statutory Concession’ (ESC A19) allows HMRC to do this and it only applies to individual taxpayers who owe Income Tax. It does not apply in any other circumstances where amounts owing to HMRC are in dispute.
The circumstances are that HMRC should have used the information provided within 12 months after the end of the tax year in which it is received.
This guidance explains the conditions that must apply, who to contact in HMRC if they do and what information you’ll need to provide.
On this page:
- What counts as information?
- Time limits
- Reasonable belief that your tax affairs were in order
- Making a claim
What counts as information?
The list below shows information that HMRC would normally use to adjust your tax code to make sure you pay the right amount of tax:
- details of a change in income
- a new job or additional job
- a taxable benefit provided by your employer, for example a company car
- start receiving a work or private pension
- receipt of state retirement, disability or widow’s pension
This list is not exhaustive and each case will be treated on its own set of circumstances. This information can come from a variety of sources – you, your agent, your employer or the Department of Work and Pensions.
Time limits
The time limit which applies for ESC A19 is where HMRC has failed to use information received, within 12 months after the end of the tax year in which it is received.
For example: on 1 August 2007 HMRC received information about commencement of a new pension in tax year 2007/2008 and the end of that tax year is 5 April 2008. HMRC should have either issued a tax code or sent a tax calculation for the above receipt of information before 5 April 2009, which is 12 months after the last day of the tax year 2007/2008.
The same time limits apply for any over-repayment of tax that is made in error and HMRC asks for the tax to be paid back.
If no information has been received then ESC A19 cannot be considered.
Exceptional Circumstances
In exceptional circumstances, arrears notified less than 12 months after the end of the relevant tax year may be considered where both of the following apply:
- HMRC failed to make proper use of more than one piece of information received about a source of income
- HMRC allowed tax arrears to build up over two whole tax years in succession – so at least two tax year underpayments are due
Reasonable belief that your tax affairs were in order
HMRC will consider the facts and circumstances of any claim that this concession should apply and decide whether it was reasonable for you to believe (prior to receiving the Tax Calculation) that your tax affairs were in order.
Making a claim
If you think this concession applies to you, then you need to write to the address on your Tax Calculation indicating that you are making a claim under ‘ESC A19’. You will need to provide the following information:
- what tax year and underpayment the claim relates to
- what information HMRC failed to make proper and timely use of and any supporting information
- what date this information was provided
- reason(s) why you thought your tax affairs were in order prior to receiving the Tax Calculation
HMRC will consider your claim but may need to verify details with you before giving you their decision.
Please note that there is no legal right of appeal but you can ask for another officer to review the decision made.
If you still believe that you should not have to pay the tax after a second review decision has been provided, please read ‘How to Complain to HMRC’ to decide if your case has not been dealt with properly.
How to complain to HM Revenue & Customs
More useful links
HMRC Extra Statutory Concession guidance booklet (PDF 336K)
Over the next few weeks, millions of people who pay tax through PAYE will receive calculations from HMRC telling them they have either underpaid, or overpaid, tax for the last two years.
Any calculations produced by HMRC which result in an underpayment of tax should be treated with caution. It will be by no means certain that they will be correct or should be agreed.
In June 2009, HMRC changed the computer system by which PAYE is operated. Because the new system was not well enough checked before launch it has spewed out millions of incorrect PAYE notices (called ‘codings’) caused mostly by faulty data already present prior to launch.
This same system is now going to reconcile the tax position of millions of people starting this weekend. It is expected to throw up over 4 million repayments and close to 2 million underpayments (according to the BBC
).
The two years to be reconciled are 2008/09 and 2009/10. HMRC will produce a calculation (on a form P800) and will expect taxpayers to check that it is correct. There will be another piece of paper (P800 Notes) which will 'give guidance'. Such drafts that we have seen indicate that this guidance will not tell the full story and will not give taxpayers all the help that they need.
We think this is a poor show and in breach of HMRC’s undertakings expressed in their Charter.
The fact that they will be trying to collect debts which, if they had done their job promptly, could well have been reimbursed to people on means-tested benefits by other government departments makes the position even worse.
There are several points to note.
Informal calculation, not a tax demand
These forms represent an informal calculation only, not a demand for tax. That will not be immediately obvious from either the P800 or the guidance. If the calculations are not understood they should be challenged and HMRC asked for a detailed explanation as to how things went wrong.
Have you underpaid tax?
There are three main things to bear in mind if your P800 shows you have underpaid tax.
1. If you have underpaid income tax or capital gains tax for the year 2008/09, and you are satisfied that HMRC have all that time had the information they needed to calculate your tax correctly but have simply not used it until now, you should ask them to consider writing off the underpaid tax – i.e. remitting it and not collecting it from you – under the terms of ‘extra-statutory concession A19’.
The text of A19 is set out on pages 25 and 26 of this booklet but will not be reproduced in the P800 guidance notes. Everyone who comes within the factual situation set out in the concession has the right for HMRC to consider it in their case.
That is not to say that they will inevitably get their underpayment written off – that depends very much on whether HMRC think you should reasonably have known you were underpaying. If you disagree with HMRC’s decision on that, you can refer the matter to the Adjudicator, but you cannot appeal. However, it is important to know that the concession exists, something about which HMRC are notoriously reticent.
2. If you have underpaid tax for either or both years, and you think it was your employer’s or pension provider’s fault for not operating the code given them by HMRC correctly or through making some other mistake, then in strict law HMRC must first call upon your employer or pension provider to make good the shortfall.
If you think you fall into this category, and HMRC are now trying to recover the underpaid tax from you, then you should challenge them.
3. The calculation produced by HMRC is not necessarily the full picture of your tax situation. You may be entitled to further tax reliefs or HMRC may not have matched all of their records for you. HMRC will not explain this fact very clearly.
LITRG help
We are not an advice agency so cannot answer individual queries, but by Tuesday of next week we expect to post a further article on this website which will set out a step-by-step guide of how people should approach the receipt of one of these tax calculations.
TAXPAYERS hit with demands for backdated payments because of the taxman’s blunders were given new hope yesterday.
They could dodge the bill if it arrives after an official deadline, said financial experts.
HM Revenue and Customs (HMRC) is seeking to collect around £2billion because of PAYE tax code blunders over the past two years.
Around 1.4 million people who have underpaid could face average bills of £1,428 each and most will be clawed back gradually through their wages.
Up to 4.3 million workers may find they have paid too much tax and will get refunds totalling £1.87 billion, averaging £418 each.
Those affected will learn their fate by Christmas. However, millions more may yet be due for refunds or demands from the taxman due to errors dating back before 2008, it was admitted yesterday.
Meanwhile, for those who do find themselves facing demands to pay up, the deadline factor is the latest twist in a saga of errors.
Under the rules HMRC must issue demands for underpaid tax within 12 months of the end of the tax year in which it became aware of the problem.
If HMRC fails to do this, taxpayers can ask for an Extra Statutory Concession, also known as ESC A19.
The latest round of blunders dates back to April 2008, meaning anyone who alerted HMRC to changes in their circumstances that affected their tax code before the start of the new tax year in April 2009 may be able to cite this clause.
Angela Beech, partner at chartered accountants Blick Rothenberg, said: “People who receive these demands need to think before they automatically pay up.
“If you had given HMRC information that would have enabled it to adjust your tax code to make sure you did pay the right amount of tax, then – if the time limit has passed for it to use that information – it cannot pursue you for the unpaid tax.”
Emma Boon, of the TaxPayers’ Alliance, said: “This is great news for taxpayers who are worried they might be about to get a big bill.
“It is within the rules and means they won’t face paying back a lump sum that’s unaffordable. However, it is more forms for people to fill in which is going to complicate things.
“It means that it will take longer for people to resolve this problem.’’
It could take four years before HMRC processes 17.9 million “open’’ cases on its books.
The most recent errors came to light because the HMRC has a new computer system which is more efficient at cross-checking tax records.
HMRC confirmed it may write off underpayment in certain circumstances. But it warned that taxpayers may need to show they put the information in writing. Some mistakes will also be down to employers who failed to inform HMRC of changes.
http://www.taxpayersalliance.com/media/2010/09/scottish-daily-express-ta...
The country "cannot afford" to write-off underpayments of income tax caused by calculation system problems, Treasury minister David Gauke has said.
The comments in the Commons came as experts suggested taxpayers had little chance of escaping payments.
Some 45,000 people are receiving letters from HM Revenue and Customs by second-class post explaining that they have paid the wrong amount of tax.
Nearly six million taxpayers will receive letters by Christmas.
To read more http://www.bbc.co.uk/news/business-11230325
HM Revenue & Customs (HMRC) says it cannot to tell how many taxpayers may pay interest on top of the unexpected tax calculations being sent out between now and Christmas.
About 1.4 million people are being asked to pay £2bn in unpaid income tax.
Those who owe more than £2,000 may be charged interest if they do not pay on time.
But an HMRC spokesman said "the vast bulk" would owe less than that amount.
Another 4.3 million people are in line for rebates for a total of £1.8bn, because they were overcharged by the authorities during the two tax years 2008-09 and 2009-10.
But interest has focused on those who will be asked to pay more income tax.
Those who owe less than £2,000 will be told the money will be recovered from their salaries via an alteration to their tax code.
They will pay more tax in the coming tax year (2011-12) to make up the shortfall.
In these cases, there is no question of interest being charged as well, and the calculation will be incorporated into their tax code automatically.
Deadlines
The situation is more complicated for those who owe more than £2,000.
They will be sent another letter as a follow-up to the recent calculation letters, but asking them to pay.
If they do not respond within eight weeks, they will be sent a formal self-assessment tax return to complete.
It is the issuing of that return which will trigger a countdown to the point at which interest may be chargeable.
People whose return was sent out before 31 October this year will have to pay by 31 January next year, or start paying interest at 3% a year on the outstanding sum.
Those whose returns are posted to them after 31 October will have three months to return it and a further seven days in which to make the payment. Only then will interest become due.
Agreement
Those who cannot pay the extra amount in time will have a choice.
They can pay off just part of the money, to bring their debt below £2,000, and ask for the rest to be collected via their PAYE code in 2011-12.
Or they can ask for extra time, perhaps spreading the payments over a year, or maybe more.
But even if they come to an agreement with HMRC to stagger these payments, this will not lift their obligation to pay interest.
This will still be chargeable, although on a gradually declining sum.
For the second time in less than a week HMRC has had to u-turn on the handling of the PAYE debacle. After being hauled before the Treasury Select Committee, Dave Hartnett, the top taxman at HMRC, now says millions of people who underpaid tax as a result of his department’s mistake will not have to pay interest on the money they owe. He’d initially said they’d have to pay as much as three per cent.
This change of heart comes after an embarrassing back down for the beleaguered HMRC boss on Saturday, when the BBC released an interview where Hartnett said he would not apologise for PAYE mistakes. I was interviewed by BBC Breakfast and ITV news and condemned Hartnett for his failure to say sorry. By that evening Dave Hartnett had issued an apologetic statement, admitting that he had been insensitive.
Dave Hartnett was not alone as he gave evidence to the Treasury Select Committee (it’s their job to examine HMRC’s administration and policies). HMRC chief executive Dame Lesley Strathie was also called and claimed that the mistakes have only come to light now due to the increased accuracy of a new IT system. But this blame game will not help hard-pressed taxpayers who will have an unexpected bill for hundreds of pounds dropping onto their doormat sometime in the next few months.
The story of 6 million taxpayers charged the wrong amount of income tax is unlikely to go away any time soon. Dame Lesley is now insisting that HMRC is fit for purpose, and that the annual reconciliation did not represent any mistake by her workforce. Whether or not there is a good reason for 6 million mistakes all coming to light at once, taxpayers are still waiting for someone to take responsibility for these mistakes. Those on the PAYE system cannot rest easy that mistakes will not happen again until that happens.
http://www.taxpayersalliance.com/campaign/2010/09/tax-gets-interesting.html
HM Revenue and Customs failed in its duty to process pay-as-you-earn (PAYE) accurately and on time in 2008/09 and even though it knew that 7m people had overpaid or underpaid tax the department didn't tell them until September 2010 because of computer problems, the Public Accounts Committee has said.
Committee member Richard Bacon said that the failed implementation of HMRC's new national insurance and PAYE service (NPS) had caused "chaos throughout the income tax system".
The aim behind NPS was to bring together for the first time all of an individual's pay and tax details into a single record, meaning more accurate tax codes and less likelihood of over and underpayments of tax.
But computer problems had caused "lasting and costly losses" for the department and "unacceptable uncertainty and inconvenience to the taxpayer", the committee said, including disruptions to tax codes for 2010/11. HMRC had failed to tackle a backlog of 18m PAYE cases from 2007/08 and earlier and the exact amounts of tax involved are not known (estimates suggest £1.4bn was underpaid and £3bn of overpaid tax will be refunded).
And the department failed to understand the impact of the Finance Act 2008 on the deadlines for collecting tax, the committee said, so is now unable to collect any of the estimated £650m tax underpaid in 2006/07 and earlier.
The committee said that while the aim is to "stabilise" NPS by 2012, HMRC must demonstrate the ability of the system to process PAYE promptly, accurately and efficiently and restores customer confidence. This includes processing everyone's PAYE within 12 months of the end of the tax year and maximising the net revenue it collects before the deadline expires for 2007/08's tax underpayments.
Committee chair Margaret Hodge said: "HMRC's mismanagement has caused uncertainty and worry to taxpayers and inequity in the system."
Bacon commented: "The failed implementation of ...NPS in 2009 has caused ripples of chaos to spread throughout the income tax system. HMRC has failed in its duty to taxpayers to process PAYE accurately and on time [and] must get its act together and stabilise the PAYE system as soon as possible."
Commenting on HMRC re-hiring its acting chief information officer (CIO) on a three month contract for "a whopping annual equivalent of £600,000" then spent £20,000 helping him to find another job, Bacon said: "People worried about their jobs will have every right to be angry over HMRC's extraordinary largesse. HMRC could easily have planned for an orderly transition to its new CIO and it speaks volumes about the approach of HM Revenue and Customs that it did not."
Can someone please help. I can see lots of people have had issues with this. i am one of those and my bill in in excess of £8K. I left my previous employment in June 09 following redundancy and had my p45 issued and the p14 was cent to the tax office. I started working again in August 09 and informed the tax office of this. i assumed that all of my tax affairs had been sorted by both employers but I have now had a massive bill for underpayment due to the redundancy payout. I have spoken to a person in the Tax office who say that my employer operated the tax code correctly and that they have done nothing wrong so its down to me to know that I had not paid enough tax!!!!!!. Very very frustrating and hard to resolve. The tax office were aware of my redundancy payment and new job but they say that had to wait until the end of the financial year to know how much i actually earned which is why i am now getting the bill. Is this correct???
My initial thoughts on this matter is to look at HMRC redundancy information, I found http://www.hmrc.gov.uk/guidance/redundancy-factsheet.pdf , you should have been issued with a P45 from your employer with your up to date employee income, tax and payments. You could check with your current employer to check these figures were passed to HMRC. Also have a look at the fact sheet provided, also http://www.hmrc.gov.uk/p800/index.htm .
You could also look at your latest pay slip from your current employer and do a quick summary using http://listentotaxman.com/ (an example) to calculate you tax free allowance, tax paid and income to date for the financial year. If you wish to email me with some more information, I would be happy to suggest an alternative course of action/response. (This will be done on a personnel basis)
Kevin
Further to the response given by Kevin above and I am no tax expert. I base my comment on the HMRC guide Kevin has given.
Your income for 2009/10 is made up of
your salary to June 2009 + Redundancy Package (redundancy payment + value of any gifts + any payment due for example holiday/salary owed) + any welfare benefits you recieved + income from new job from August 2009 to the end of the tax year in March 2010.
Not all will apply but this is the broad calculation. Gifts can be things like if the company gave you a car and that car was valued at £2000 for example.
Your tax liability is likely to be
your salary to June 2009 + Redundancy Package ((redundancy payment -£30,000) + value of any gifts + any payment due for example holiday/salary owed) + any welfare benefits you recieved + income from new job from August 2009 to the end of the tax year in March 2010.
that apart from the £30,000 tax free limit all other components may be subject to tax & National Insurance. Note that if your redundancy payment is under £30,000 you will still have a tax liability for the value of any gift and any salary owed, they are not subject to the tax exemption in the calculation.
For the purposes of tax and your redundancy package. The liability here depends on your employment status at the time your redundancy payment was made. That is, if your redundancy payment was made whilst you were still an employee, the redundancy payment should be on your P45. You can check this. You haven't confirmed this appears. If your redundancy payment was made after you ceased being an employee than your previous employer would be unable to process the payment through P.A.Y.E and it falls to you to ensure that any tax due on your redundancy payment less your allowance of £30,000.00 is paid by you. It is your liability.
You can check this by gathering together all the proofs of income you have such as pay slips, P45, P60, P14 etc ...
If your P45 clearly shows your redundancy payment but your employer has made an error in calculating the tax for the purposes of PAYE than you have a case that you have acted in good faith, the HMRC had all the information in a timely manner and failed to act therefore it has failed in its duty to you.
I have checked the Citizens Advice Bureau and they suggest people in this situation refer to the Low Incomes Tax Reform Group, Kevin mentioned them in comment number 5 above and there website is http://www.litrg.org.uk/
They have a wealth of information on PAYE underpayments, click here. I would recommend you work through the various guides on the pages.
I hope this has helped. It is difficult without specific's to be more precise.
As for the HMRC. If you believe the information they hold on you is incorrect or incomplete you can make a request under the Data Protection Act 1999 information is available from the Information Commissioners Office (www.ico.gov.uk) .
If you feel you are not getting the service you expect than you can issue a compaint.
You might find that your local MP maybe able to write on your behalf.
The Citizens Advice Bureau may be able to assist you with the paperwork and checking your tax or point you in the right direction to get this help.
Just be AWARE they may be time limits in which you need to challenge the HRMC about your underpayment.
More than 10 million people may have paid too much income tax and will be owed money by the government due to errors in the HM Revenue and Customs (HMRC) tax code system.
HMRC admitted last week that 4.3 million people were likely to receive tax rebates because they had overpaid a total of £1.8bn in income tax between 2008 and April this year. A further 1.4 million people will receive demands for repayment because they paid too little tax over the same period.
But officials have now confirmed that in addition to the 4.3 million cases of overpayment previously identified, errors from before March 2008 may have resulted in a further 5.8 million people overpaying tax and thus being entitled to rebates.
And while all those affected by the problems between 2008 and 2010 will know exactly where they stand by Christmas, experts say the older cases could take up to four years to sort out.
HMRC officials say the discrepancies between what people paid in tax and what they should have paid is down to the introduction of a new £400m computer system. The new computer – brought in to replace 13 different data bases in January this year – is said to be much more efficient at spotting under and overpayments of income tax.
Experts said the problem of overpaid and underpaid tax was growing as PAYE failed to reflect the modern workplace and its frequent changes of job, pay and benefits and accompanying changes in people's tax codes. The recession is likely to make the problem worse.
Coalition ministers will argue that the errors were caused by the over-complicated system that grew up under Labour.
A Treasury source said: "We inherited an absolute shambles from Labour and we are acting to get a grip on it as soon as possible."
Tax offices are expected to be deluged with phone calls and emails from worried taxpayers, but HMRC has made no special provision, since it considers the mistakes to be "normal".
http://www.publicservice.co.uk/news_story.asp?id=14043