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A article in from Tax Help for Older People, who Whitefield support.


ESC A19 treated inconsistently by HMRC

Tax Help’s success demonstrates the importance of knowing your rights and how to complain

The proposal to introduce taxpayers’ responsibilities offers no better objectivity over reasonable belief test

HMRC trying to bend the concession to their own advantage

 Extra-statutory Concession A19 – “Is it reasonable”

On the face of it, the answer should be “yes, of course”. After all, ESC A19 exists to provide fairness to taxpayers when HMRC has made a mistake. But as the many articles that have appeared over the months (and years) bear testament, there remains a huge gulf between theory and practice. It is a concession used more often than not by unrepresented taxpayers faced by demands for tax underpaid that they are only notified of years after the underpayment has allegedly occurred. For it is this group, especially those on lower incomes, that are least likely to enjoy the services of a professional agent or tax adviser.

What we here at Tax Help for Older People hope to share here is just how current practices and application impact on one particular cohort within the unrepresented group, the older taxpayer.

Whilst this concession has a long and evolving history over 40 years, it has really achieved front row prominence since the introduction of HMRC’s new NICsand PAYE Service (NPS) in 2009. In particular, the subsequent catch-up exercise in clearing a backlog of some 18 million open files and the processing of 6.7m end-of-year reconciliations relating to the 2008/09 and 2009/10 tax years. From this point on many of the recipients of statements showing underpayment of tax have been pensioners, and this is where we come into the story.

Why us?

Tax Help for Older People is the primary tax charity offering a free service specifically to older, low-income and often vulnerable clients. Since 2008, before NPS was introduced, we have seen the numbers seeking our pro bono help double from around the 10,000 mark to over 22,000 each year. Of course not all of these cases involve ESC A19, but since 2010 we have been involved in 2,100 individual cases where ESC A19 has been claimed. Of the 1,400 cases closed thus far, 97% have successfully led to the writing off of £2M of tax unfairly demanded. The average time taken to progress a case from first contact to closure is around 18months, with a range between eight months and two years of protracted correspondence.

Why pensioners?

Because contrary to the idyll that retirement is fondly thought of as representing, in tax terms the affairs of older people often get more complex rather than simpler.

~     First, the state pension is not taxed at source by DWP, always a source of confusion, provided of course that the pensioner understands and accepts that their state pension counts as taxable income at all.

~      Then there is the oft-added complication of drawing multiple small pensions and possibly an income from part time employment as well, thus providing opportunity for dual allocation of the personal allowance.

~      For those leaving employment this may also mean that they no longer enjoy the support of a works’ payroll department and face their first contact with HMRC; the PAYE system having previously worked perfectly smoothly for them year on year. Indeed they may well never have received so much as a P2 coding notice from the Department before retiring and thus managed to remain blissfully ignorant of the workings of the tax system generally.

~      An increasing proportion of available information can only be accessed on line, but  according to one survey 56% of people over 65 ‘voluntarily exclude’ themselves from having Internet access compared to the national average of 22% and this figure increases again for people aged 70 plus.

~      Finally, they are almost certainly experiencing a reduction in their income, leaving little appetite or spare cash for professional advice.

Perhaps the best way to illustrate the pitfalls and hurdles facing our clients and our approach to helping them use ESC A19 is to set out a couple of typical scenarios, based around real cases.

Scenario 1

Imagine a pensioner who started claiming her State Pension in Oct 2008. She was 63 and did not receive a P161 from HMRC. She is not even aware the form exists and so doesn’t miss it. She rightly assumes that DWP will be informing HMRC that the pension has started and that is all she needs to do. She has two very small private pensions but tax hasn’t been taken on these. She believes that the state pension isn’t taxed and carries on with her life. In September 2011 she receives a P800 tax calculation telling her she owes £2690.

On contacting HMRC she is told that the figures are correct and the tax is owed and she is encouraged to agree to a payment plan. However this taxpayer is not happy with the answer and chooses to write to HMRC asking why she has not paid enough tax. The ensuing reply informs her that she is aware that her state pension is taxable and she should have informed HMRC of it commencing. The tax remains due and she is once again encouraged to pay. Still not happy, she contacts Tax Help who are able to explain that HMRC would have been informed by DWP when her state pension commenced and that in fact if her state pension had been incorrectly coded, then HMRC should have written off the arrears under the ministerial guidelines of January 2011.

Tax Help draft a letter for the client to send to HMRC, which elicits the response that, yes, actually they were aware of the state pension but were not aware of her small pensions. Furthermore, and as she is aware, it is her responsibility to inform HMRC when a pension is first received and therefore the tax remains due and payable. Once again, she is encouraged to pay.

Tax Help explain that the pension provider should send in a P46(Pen) when a pension starts. So, either this didn’t happen and there is a potential employer error (Regulation 72), in which case HMRC should first approach the employer/pension provider for the lost tax, or, if it was sent, then HMRC  has failed to use the information in time and ESC A19 may apply.

Tax Help draft a letter of complaint for the client, this time also noting that HMRC had failed to put her into self assessment as her state pension is higher than her personal allowance. The next reply from HMRC apologises for the inconvenience and for the fact that a full review has not taken place. It can now be seen that HMRC had failed to use the information provided by DWP and the pension companies, however, “we find that you fail the reasonable belief test. You should have been aware that the state pension was taxable and should have expected to be paying tax. You should have contacted us.” The client is given information for contacting the Adjudicator and encouraged to pay.

(In reality Tax Help would have pursued this further, but that takes us into yet another ball game….)

There are a number of variations on this theme that we frequently see played out.

Another common ending is ‘there is no information available so HMRC cannot prove either employer error or HMRC failure to use information and the tax remains due and payable by the taxpayer.’


‘The pension provider tell us they sent the P46 (Pen) so we have to take their word for it. We cannot prove employer error and we have not failed to use information. The tax remains due and payable.’


‘We sent you a pension coding notice, so it is reasonable for you to check that your pension providers are using the correct codes.’

Scenario 2

An 80 yr old widow receives a P800 for 08/09 and 09/10 in Aug 2010 showing an underpayment of £1002. For nearly a year she telephoned and wrote to HMRC, ending up in her having to agree to a payment plan in June 2011. She never managed to get a full explanation as to why she underpaid tax in the first place. Tax Help became involved for advice in Nov 2011.

The lady has State Pension (1), another pension (2) which has a code based on personal allowance less SRP and small pension (3) coded NT and has been since 2001. She inherits another pension (4) in 2004 when she was widowed. Over the years it has been coded 690T then 173T, then BR and finally since 2005/06 after she contacted HMRC, 188T. She contacted HMRC in March 2005 because she had been issued a BR code against pension 4 and didn’t understand why HMRC had changed it to 188T.

Tax Help have questioned:

~ Why pension 3 was not covered by the small pension rules and not even brought into the tax computation until 2010/11?

~ Why did HMRC change pension 4 when she contacted them in 2005/06? The tax code was queried, so it should have been explained to her why it was correct.

~ Why the client has been told she fails the reasonable belief test when she tried to check that her tax was correct. The error was caused by a change in the way HMRC taxes small pensions and by an error created by an HMRC trained officer. HMRC agree that at the time of the call they were aware of all her sources of income

~ Why, even though she has agreed a payment plan for the alleged arrears do they remain in her 2011/12 P800? Without intervention she will end up paying twice.

After two years and numerous lengthy letters the taxpayer remains confused as to why she is being made to pay. Why? Because she contacted HMRC to query her tax code, it was not reasonable for her to believe her tax affairs were in order! She did as HMRC asked and made contact to check. HMRC told her what her code should be and the pension company did as HMRC asked. What more could she do? Why would she not believe her tax affairs were in order? To stress the point, we see just as many cases where taxpayers have not called HMRC and they are told that they should have noticed the problem and contacted them. So what should a taxpayer do? Catch 22 lives on.

So, we have three reasons why the wrong tax has been taken

~ The Employer/Pension provider has failed to give information to HMRC

~ HMRC have failed to make timely use information provided

~ The taxpayer has failed to inform HMRC of a change in circumstances affecting their tax position.

In the first instance, employers have a responsibility to operate PAYE correctly. This extends beyond merely applying a code provided by HMRC to supplying relevant information on commencement of work or pension, as well as making the right deductions for tax and NICs and submission of P11Ds. It is not, as HMRC frequently allege, the responsibility of the taxpayer to notify HMRC that they have started a new job or pension. At most they hand in a P45 or tick the right box on a P46 and the employer does the rest. Pension schemes (including DWP) are responsible for sending in a P46(Pen) when they start paying a pension. If they appear to have failed in these duties, the HMRC are obliged under the PAYE regulations to make enquiries of them and ask them to foot the bill should they have fallen short. Increasingly HMRC have, in our experience, made fewer and fewer efforts to pursue employers, finding it easier to go straight to the taxpayer who doesn’t understand either tax or their rights.

In the second case, and again in our experience, HMRC need a lot of pushing before admitting that they did have the information at the time; alternatively before admitting that they can’t find it/have lost it. Nevertheless they will try to put the onus on the taxpayer by asking them to tell HMRC what information they (HMRC) possessed on which they failed to act. This is not so much asking the taxpayer to prove a negative as asking them to show how the whole tax system should work and which bit of it failed!

The third bullet is the least important. There are very few occasions outside tax credits when the taxpayer needs to inform HMRC of a change in circumstances. Perhaps the most important one is the death of a spouse or civil partner. Even the P161 is not a statutory document. Sometimes failure to revoke an R85 can be considered a taxpayer failure, even though it is a second-hand procedure.

So HMRC fall back on the reasonable belief test (RBT). As HMRC puts it, ‘The important point to remember is not whether the taxpayer “believed” their tax affairs were in order during the build up of arrears, but whether it was reasonable for them to “hold that belief.”

As many readers will already know from their own experiences, this is very hard to fight simply because it is so subjective. HMRC guidelines for the Reviewing Officer set out some elementary questions by way of a paper trail checklist that are supposedly designed to help them reach a view. This in itself requires that Officer to make a series of mini-judgements such as ‘could we expect them to expect a noticeable change in the tax they were paying’, or ‘did they show a previous understanding of similar issues that suggests they should have known there was a problem with their affairs?’ Even ‘is the customer in a vulnerable group?’

It begs the question how do you know what is reasonable for someone to believe if you have never met them or even talked on the telephone with them? Yet, we have seen many hundreds of letters blithely stating that the taxpayer should have known how the state pension is taxed; what the implications or significance of a coding notice were; that the bald figures on a payslip or P60 should have warned them that they were being given dual personal allowances or that the absence of a P2 might mean that HMRC were unaware of that income source. These assertions are made daily across the country by junior officers within HMRC with absolutely no knowledge of the taxpayer. To see from a screen that someone is paid by an education authority does not tell the officer whether that person is a part-time teacher or a full-time caretaker. (Or indeed, if they are paid by one of the major accountancy firms, whether they are a tax specialist or not!)

At Tax Help we find it difficult not to conclude that there is a mismatch between expectation on the part of HMRC and the tools available to the general public to educate them fully on the workings of the tax system and the implications for them personally of everything they receive from the Department. In the absence of these tools the gap between what someone believes and what it is reasonable to assume they ought to believe narrows significantly and it is only right and proper that in applying the RBT the taxpayer is given the benefit of the doubt in more cases than not.

The recent consultation on reviewing (rewriting) the concession made much of replacing the RBT with a statement of taxpayer and HMRC responsibilities, in an attempt to make the test more objective. It failed to convince many in or outside the profession, because the imbalance between rather light HMRC responsibilities and onerous taxpayer responsibilities made it even harder for the taxpayer to claim remission. Under the proposals HMRC escapes any responsibilities for acting on information in a timely manner and only has to issue or amend a tax code and accurately record and use any information provided as part of the annual PAYE reconciliation. The taxpayer however is required to go beyond the ‘reasonable care’ required of them when filling out forms or completing returns under the terms of the HMRC’s Charter. Rather, they are expected to shoulder the burden of reporting changes, checking tax codes and recording conversations and to have ‘a certain basic knowledge about their own tax affairs’. In common with other respondents to the consultation exercise Tax Help queries how the proposed framework of responsibilities offers any more clarity or improvement over the existing reasonable belief test. Both are equally capable of differing interpretations.

Critically, the onus is shifted away from employer/pension provider onto the taxpayer to tell HMRC about ‘any changes in their circumstances that will affect their payments or claims’. Indeed, there is a singular absence of any responsibilities placed upon the employer; the only mention they get being the prescribed information from them that it is proposed will count as relating to a change of circumstances or income. Given Tax Help’s experience that without the proper intervention of ESC A19 it is the poor taxpayer as piggy-in-the-middle who foots the bill for mistakes made by either employer or HMRC, this lack of explicit responsibilities cannot be fair or equitable.

Furthermore there was a sleight of hand attempt to rewrite the exceptional circumstances condition by inserting a previously non-existent “and” between the two bullets, where the normal interpretation was an “or”, allowing either one of the two conditions to apply, not necessarily both. Others have already proffered views on the integrity of this.

That Tax Help staff and volunteers have had a remarkable degree of success in getting the concession applied and tax written off does not excuse the way in which, in our experience, it has been inconsistently applied in the first instance; most critically around the reasonable belief test. Nor does it excuse the apparent shift of goal posts on what was already an uneven playing field or the most recent attempt through the ESC A19 review consultation document to change the nature of the game completely. There is also a serious failure of HMRC to instil a thorough grasp of the way in which the concession works into their frontline staff. All too often we see relatively junior officers offering different responses in cases with the same basic facts and requests for an independent review being undertaken by someone only months senior (that fulfils the condition of review by a “senior officer”). Our successes come not through the application of some secret formula (if only!) but through sheer doggedness and a desire to see fair play for vulnerable taxpayers.

Graham Sherburn

Chief Executive

Tax Volunteers (Tax Help for Older People)

November 2012

Tax Volunteers is the registered Charity through which the Tax Help for Older People (Tax Help) service is provided and governed. The Tax Help service provides UK-wide free, expert, personal tax advice to older people on lower incomes by telephone from its operations centre and at face-to-face interviews in their homes or at local centres. For the latter, it draws on the pro bono services of over 500 volunteer professional tax advisers.