underpayment of tax?

Discussion in 'Army Pay, Claims & JPA' started by fusilier50, Oct 21, 2010.

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  1. i received two letters from the tax office today both stating i had underpaid tax £758 in 2008-9 and £1348 in 2009-10. turns out the second is the total amount not a separate amount as i first thought. i immediately phoned them and said there must be a mistake as my employers wouldnt have made that kind of mistake. how wrong i was. my civilian employer had paid the correct tax and the correct rate but my TA pay was the one at fault. as a secondary income it comes under the Base Rate of tax. for some reason they had it as 645L which means no tax was paid. i earned less than 4k with the TA. i now owe a lot of tax through no fault of my own. i checked the tax code and as it was the same on both so i assumed incorrectly that i was paying the correct amount. apparently it is my responsibility to ensure i am on the right tax code but how the hell am i supposed to know? i do not earn a lot of money. i only work part time due to cutbacks and only earn around 16k a year. £1348 is more than a months wage for me at the moment. i cannot afford the loss of that sort of money. i asked why they didnt inform me when the amount owing was only £700 but was told it had only just come to light. i dont claim any benefits and am only just keeping my head above water even before this bombshell arrived. what can i do?
  2. They haven't sent you a bill, just an advice. Get in touch and work out a payment plan.
  3. Where have you been CQMS i've needed your help
  4. Unfortunately that is true. You only get one Lower Personal Allowance. For 2010/11 it's £6475, so assuming you've got no deductions (company car benefit, tips, benefits in kind) to reduce that your code this year (and the next few) would be 647L. For earlier years it'd be a bit less. If your main employment is going to earn you more than your allowance then you've got no allowances to transfer to your TA pay so normally your TA pay would have a BR (basic rate) code that says you should pay basic rate on it all.

    Tax codes are issued by HMRC. But they will only get it right if the info supplied on the P46 (employer's application for tax code) completed by your TA pay bloke was right. That could have been wrong for any number of reasons.

    You should have had a P2 from HMRC telling you what code they'd sent to the TA to use. Your pay bloke would have got a P6 with the same instruction. HMRC would argue you should have picked up the anomaly then or any time you got paid as your civvie and TA pay notices should show you the tax code being used.

    Students etc, who have no other taxable incomes or incomes that total less than their allowances may either apportion enough allowances to make them pay no tax on an employment or fill in a P38(S) that gives them a NT (no tax) code. This is reviewed annually.

    HMRC didn't tell you earlier because they didn't do any assessing on you until just now. They do have a big backlog of work and routine assessing is suffering as a result. It just took me 10 months to get a repayment that I was due and I'd even worked it out and sent them the calculations along with all the P60 evidence they should have anyway but always claim not be able to find!

    It is the duty of your employers to operate PAYE correctly. It's only if and when HMRC assess you for a particular year that they'll spot the issue and tell you. They can only do it after the tax year has finished and your pay and tax details are in from your employers. Ideally they should have caught the issue after the first year but they didn't. They have the right to take up to just under seven years if they wish.

    Important thing to understand is that there is no need to raise your hackle (geddit?). It's not the end of the world. You should not have to find £1348 in cash. When I worked in Taxes we were happy to listen to requests to stagger the collection of what was owed. We frequently let people do it over 2 or 3 years via a deduction in their tax code.

    Claim hardship and ask to pay it back through your tax code over 3 years. If they are nice, like I was, they'll split it over 3 years. If they are not so nice, 2 years.

    I would have done it like this:
    Yr 1 collect £450.00, Yr 2 collect £450.00, Yr 3 collect £448.00 . I'd collect it by restricting your allowances (reducing your tax free amount and therefore your tax code) by an amount that would collect the extra tax month by month or week by week over the collection period.

    e.g. Yr 1 to collect £450 HMRC would reduce your tax allowances by £2250 as £2250 @ 20% basic rate tax = £450.

    So your tax code next year would be calculated as follows:

    Lower Personal Allowance £6475 less the Restriction for underpayment of £2250 = £4225.
    Tax Code 422L to be allocated to your civvie (main) employment.

    Then they'd do a similar thing for the next 2 years. The effect to you would be to collect about £8.65 every week for 3 years. Not nice but better than your forking out £1348 now.

    Talk to them. They are reasonable people. Go to your main employer's tax office (they'll be the ones that sent you the advice) and ask "Can I have the underpayment coded out using a deduction against my main employment over 3 years please?" and see what they say. Good luck.

    And check your payslips monthly to ensure that your TA code is BR in future. If your TA code is not BR now tell them. You will have accrued another underpayment if it isn't but you can stop it getting any bigger by telling HMRC now. They will issue a "BR Month 1" code that will collect the correct tax from now until next April but that won't consider your TA earnings before now. That underpayment will get tidied up later, after April 2011.
  5. Unfortunate buddy, I hope somehow you manage to sort it all out. I was fortunate in them deciding Id paid too much Tax so Im getting £630 back. Its a pain in the backside when the Tax lot screw up
  6. HMRC haven't screwed up. They issue tax codes based on what information they get passed in. It's probably all down to a genuine mistake being made when the TA pay bloke applied for a tax code.

    If he ticked the box to say he was unaware of other employments or left Fusilier's National Insurance number off or got it wrong then HMRC would not have been able to link his TA job to his civvie job and issue the correct tax code. HMRC use NINO as the unique key to get into or trace records. They can do a trace on name and/or address but it's not 100% reliable as it relies on string comparisons of one database record against another.

    No one has done anything malicious. It's a genuine mistake but it does leave an underpayment to be repaid.

    If Fusiler does what I say above it should get sorted as painlessly as it can be and not happen again.
  7. I would agree with your statement if it had only occurred in the previous financial year and employment and income had considerable flucuations.

    Some of the errors highlighted by HMRC predate this even though the error trawl being conducted is only going back to the 2008 fiscal year. Errors have been allowed to continue going back further than this. This is a HMRC cockup of monumental proportions.

    HMRC receive P60s at the end of the financial year from income providers such as employers and pension providers, and if a fundamental error has occurred through incorrect coding allocation, such as applying the personal tax threshold to multiple income sources, it should be flagged and corrected by HMRC. This has not happened and has been allowed to continue over a protracted time period. Whether this has been down to "staffing problems" or "computer glitches" is irrelevant, it comes under the remit of HMRC to ensure the correct tax is deducted from individuals.

    It is also my understanding that personal tax underpayments can only be pursued going back to 2005-2006.

  8. I'm no apologist for what was the Inland Revenue. I left their employment in 1996 when my job (I was previously transferred from a Tax Office to train as a computer programmer for them) was privatised. I did however pass my tax tests before transfer, so while I would not claim to be bang up to date on the nuances of everything I do understand the basics.

    HMRC can go back 6 full years where a genuine mistake has resulted in a underpayment, i.e at present that is 6 yrs prior to 06/04/2010. However if they have reason to believe fraud is involved (it isn't in ths case), they can go back further. Likewise you can go back the same amount of time to claim an overpayment back.

    If he wants to challenge the underpayment then it's up to Fusilier50 to prove he acted in good faith by accepting two personal allowances, and not picking up on it. I saw people try but I never saw anyone get way with that in the nine years I dealt with PAYE. For two of those I managed a PAYE team so I got to check a lot of people's output.

    Fusilier50's only real hope is if he can prove that the TA did not fulfil their legal obligations, in which case the debt would come back on them . Did he sign the P46? If so then HMRC'll argue he should ensure what he signed was right

    If pay section didn't involve him and he didn't sign form, the onus could be on employer. Problem is the days of everything being filed finished 20+ years ago. The P46 will have gone in a confidential waste bag and been burned yonks ago. In short there is no evidence with which to prove his case

    When you are held responsible for an underpayment, then more often than not the underpayment will be collected through a restriction in the PAYE tax code as I described. People with no regualr income or the self employed may be asked to pay a lump sum but can ask for time to pay if it will cause hardship. It all depends on income levels.

    I may be wrong but I don't think that the 2008 related issues you are talking about are directly related to this problem. They were caused by people leaving one employment for another and erroneous codes being issued when the new employers applied for tax codes instead of waiting to get the P45 parts 2 & 3 from previous employers. HMRC were issuing codes based on estimated income to date and cocking it up. Sadly I thnk it is still happening. My wife moved jobs in September and has been iisued a code for her new job that is utter bollocks and would have resulted in an unnecessary underpayment if we had left it unchallenged.
  9. Since you seem to be a bit switched on here, how does it come to be wrong if one has the same employer (civvy) and the same employer (TA) for many years - over 10 in the particular case I'm thinking of.
  10. Not every taxpayer's tax is checked. There is a huge assumption within HMRC that PAYE is operated correctly using the correct codes. So it is very simple for things to get overlooked or for errors to persist.

    In an ideal world every case would be assessed and the tax verified, but it isn't. We used to get a list every year of who to check. And we'd do random checks of say 1 in 150 when the system was manually maintained on what were called "concards". i jsut spoke to an ex colleague and he tells me they get a list of computer picked "random" cases nowadays.

    if you aren't picked out, on the list or you don't specifically ask to be assessed then your records will automatically be set to show "Z" (tax paid and correct) or "N" (No tax due)

    It's not cost effective to check everyone. Not saying that's necessarily right but it is what happens.
  11. HMRC's assessing powers are subject to the time limits prescribed by the Taxes Management Act 1970 c9 s34 and s36 and depend on the circumstances of the discovery of the loss. The 'ordinary' time limit is four years from the end of the tax year in question, extended to six years where the loss of tax arises by virtue of the taxpayer's carelessness and 20 years where caused by a deliberate act of the taxpayer.

    Section 34 of the Taxes Management Act 1970 states:

    Edited to add: Thank you for your imput "Roger the Cat". It is always useful to have an "insiders" knowledge, although I do have concerns over the opaqueness of our current tax system and the inability of the average "working man" to access simple tax advice. Tax legislation is voluminous and largely incomprehensible as evidenced by the Tolley's Tax Guide.


  12. Couldn't agree more. The rules should be more visble. It should be simple for most people. We aren't all Lord Ashcroft. You have sources of income be they Schedule A, D, E etc and you have a basic tax allowance, you may qualify for other allowances and you may be liable to some deductions for taxable non cash benefits that you get from an employer. But essentially it is straight forward.

    Unfortunatley HMRC won't give advice or even advise you if you ask them to confirm your suspicions when you think you are due something back from them without you risking a bill instead by making a formal request to be assessed. They'll always tell you to get independent advice and that can be expensive. Hence all these spiv firms that are popping up offering to get you a refund (in exchange for your giving them sole agency and a fee). They are a product of the injury lawyer culture. You see them in shopping centres touting for business. I was approached by a spotty Herbet this morning claiming his employer's "experts" could sort my tax and any payment protection issues out. You honestly don't need to use them. The problem is that most people are nervous of having a go on their own so allow themsleves to be ripped off.
  13. HMRC wanted £2,597.40 from me. I sent them a letter on Oct 27 quoting ESC A19, just got my reply today which states:

    "......after looking at our records, I agree that you do not need to pay the following amounts."
  14. many thanks everyone for your advice. TA personnel officer has told me its my problem to sort out not theirs and is between me and the tax office what tax i have to repay. i asked if they had changed my tax code to what it should be and got the same response. My tax debt is increasing every week and as of today the correct tax code has still not been applied correctly.