If you pay your tax under Pay as You Earn (PAYE) your involvement with HMRC will normally be minimal. Your employer will make sure that HMRC are aware of your earnings, operate the correct tax code, take the correct tax and inform HMRC of your income and tax taken at the end of the tax year. Generally, HMRC systems run smoothly and at the end of year no action is needed. However, things do go wrong for a number of reasons, like changing jobs, receiving multiple incomes or taxable benefits, retiring and even bereavement.
It is always wise to calculate the amount of tax you should be paying during the year and to check that it is actually happening. Simples! Not quite, all of the examples above can make it extremely difficult for the non tax trained person to calculate, especially when, for cost cutting reasons, employers and pension providers have stopped sending out regular pay slips, and in some cases P60’s (where no tax has been taken).
Bearing this in mind, it can be quite a shock when you unexpectedly receive a tax calculation (P800) at the end of the tax year stating that you owe tax. Over 2.6 million people are likely to receive a calculation this year. You may be aware that you have underpaid your tax and be expecting the bill, but if you are unsure of the reason it is time to ask questions of HMRC. The P800 is a computer generated form and therefore it is quite possible that the information contained on it is wrong. For example, the savings income listed might be estimated, a source of income duplicated, or your personal allowance is wrong because your date of birth is recorded incorrectly.
Rule number one – check all of the figures against your end of year paperwork. P60’s for work and pensions, Certificate 975 for your savings income and don’t forget any dividend vouchers.
Rule number two – Check for earlier year adjustments (half way down the P800). If an earlier year underpayment is shown, check you agree with it. It is not unusual to see figures here, when the amount has already been paid or a payment plan agreed.
Rule number three – If at all concerned contact HMRC and ask them to explain. If you fail to get a satisfactory answer find someone else to help like a tax adviser/accountant or tax charity.
Rule number four – Even if the figures are correct, and before paying, consider if it was HMRC or your employer/pension provider who caused the underpayment rather than you. If you feel you have done everything expected of you, you can ask for an investigation to see if either HMRC or the employer/pension provider is at fault. It is not unusual to find that the employer/pension provider has made an error in running PAYE. If this is the case HMRC should pursue them instead of you. If however HMRC decides it is not their fault, it should issue you with a ‘Reg 72 directive’ which allows you the right of appeal to a tax tribunal. If HMRC itself is at fault there is not much you can do for 2012/13 underpayments, unless the same problem occurred in earlier years. If this is the case, ask for the ESC A19, ‘exceptional circumstances’ to be considered.
If at any time HMRC issue you a self assessment, it must be completed within 3 months of issue and the amount owed must be paid. Failure to do so at this point will mean penalties and interest
This article is by Tax Help for Older People (operated by registered charity no 1102276), offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066