Tax can be taxing: what to do if you receive a repayment letter
If you are one of more than a million people in line for a bill from HMRC this weekend, it pays to check the calculations, says Neasa MacErlean
Saturday 02 October 2010
The controversy over tax repayments begins in earnest this weekend as HM Revenue & Customs (HMRC) prepares to send out notices asking 1.4 million individuals to pay extra tax which it now calculates they owe from the last two fiscal years. The issue rose to prominence last month when a pilot mail shot was sent to 45,000 taxpayers, but this month's will be up to 10 times that level.
This is one of those issues that will be resolved for individuals on the details of their cases. In the last month, officials from HMRC and a handful of tax experts representing consumers have been in discussions over test-case scenarios and various other aspects of the problem.
No one yet knows what proportion of people are likely to challenge the notices they receive. Views vary even among tax experts. Anita Monteith of the Institute of Chartered Accountants in England and Wales appears to be taking a more conservative view than others. Talking of the main appeal route, the HMRC's Extra Statutory Concession (ESC) A 19, she says: "It doesn't apply in a lot of circumstances."
However, the charity Tax Help for Older People expects that it will help people appeal in 95 per cent of the cases it receives. Chief executive Paddy Millard says: "In probably the overwhelming majority of cases, it's not going to be their [the charity's clients'] fault." Mr Millard and his team of volunteers are starting to receive the first calls for help. He thinks that, among pensioners as a whole, about 95 per cent would have a strong case on either, all or some of what is being asked of them. He says: "The ones who find us are just the lucky ones. The samples we get are statistically valid [for the pensioner population as a whole]."
If people do appeal in large numbers, they could find themselves met by lengthy delays, unanswered telephones and only a small number of experts who can help them. HMRC does not have any special helplines, for instance. The Adjudicator's Office, which runs a kind of ombudsman complaints-handling service for people who are unsatisfied with the way HMRC has managed a complaint, has struggled in the past to deal with just 1,800 cases a year. It takes about six months to resolve a complaint but it could take even longer if the public starts using its services over tax repayment problems. "We are aware of the issue but I can't say we are gearing up for it," says a spokeswoman.
Because tax is such a specialist area, there are very few consumer advisers who can give direct help. The Citizens Advice Bureau has put up some basic information on its website, but it will be referring cases to the Low Incomes Tax Reform Group (LITRG). This organisation, which has just five full-time employees and is mainly dependent on volunteers, is emerging as the main organisation prepared to challenge HMRC on the fundamentals of the problem and trying to help people with good cases fight the payment demands they receive.
The LITRG has been liaising with HMRC and the Department of Work and Pensions (DWP) over the last month. One of the issues it has been discussing is what should happen to people on low incomes who could have claimed more means-tested benefits at the time if they had known they would have to pay more tax. "For instance, there are cases in which, if someone had known they had to pay £5 a week more in tax, they could have got more Pension Credit, Housing Benefit or Council Tax Benefit," says LITRG chairman John Andrews.
But, while the HMRC is going back two years to claim tax due, these people will not be able to claim their benefits retrospectively into the 2008/09 and 2009/10 fiscal years to which these HMRC notices relate. Mr Andrews was trying to organise an ethical compromise on the issue with the two government departments as The Independent went to press.
Another common problem Mr Andrews, formerly head of tax at accountant Coopers & Lybrand (which merged with Price Waterhouse to become PWC), is trying to resolve in principle before individuals have to work it out for themselves is that of people who cannot afford to pay. Guidance is going up on the LITRG website (see box, right) on this and many other issues.
Tax Help for Older People has already automated its processes to produce standard letters for the main type of cases it is expecting. Top of the list are those for pensioners whose basic state pension was not taxed. "They fail to collect tax and say it's your fault," says Mr Millard who sees this kind of case as one that is an obvious HMRC error and, therefore, as one where HMRC should pick up the tab.
Also clear to him is where someone was wrongly given two sets of personal allowance on two sets of income. There are others where an employer has applied pay-as-you-earn tax (Paye) incorrectly and deducted too little tax. "It's up to the HMRC to challenge the employer," Mr Millard says. He and his colleagues are seeing HMRC increasingly approach the employee for the underpaid tax in these cases when, he says, "the fault lies with the employer and they are liable for the tax".
The websites of LITRG, Tax Help for Older People and another charity, TaxAid, will be the best way for many people to work out what they need to do. But these small organisations, staffed mainly by volunteers, could well struggle to give personal assistance to all who want it. They also work only with people on low incomes (under £17,000 per household annually at Tax Help, for instance) so will be of less service to better-off people. Recipients of HMRC letters who are not on low incomes could also struggle to get advice. These websites could still provide them with useful information on how to make challenges but might not cover their specific circumstances. If they go to their usual tax advisers, however, they could find that the fees charged outweigh the sum in dispute.
As well as the 1.4 million people who are being asked to pay more, there will be 4.3 million who will get repayments of tax they have overpaid. "These need to be checked just as much," says Ms Monteith. Some of the information that HMRC has used in its under- and over-payment calculations is incorrect, says Tax Help for Older People. So it is worth checking basic details to ensure that HMRC has based its sums on the right information about things such as your age and the dates you began receiving a pension or other income.
All the 5.7 million people affected by apparent under- and over-payments should hear from HMRC by the end of the year. But it could take a lot longer than that to sort out all the disputes that follow.
Case studies: Why being honest does not prevent nasty surprises
When speaking to The Independent, Paddy Millard of Tax Help for Older People pulled three letters at random out of a file of tax repayment cases. The charity will be challenging HMRC on each of the three. The cases are outlined below...
Mrs T, Gloucestershire
Mrs T had two part-time jobs and assumed that both employers were deducting the right amount of tax. Instead, she was given a full personal allowance in each case. Therefore, she paid too little tax. Millard highlights the poorly written explanations that many people get from HMRC by reading out the one given to Mrs T which is: "The reason for the underpayment this is the tax underpaid for the year". She is being asked for £1,200. "We'll certainly fight that one," says Millard who attributes the problem to "two tax offices not communicating".
Mr G, Kent
Mr G has been asked for £1,700 but, at the very most, he can only be asked to pay £267. This is because HMRC has its basic information wrong, assuming that he received the basic state pension for the whole year when, in fact, he began claiming only halfway through. Mr G says he informed HMRC of all his sources of income when he retired. Despite this, HMRC still thinks he is employed by a company he left two years ago before he retired.
Mrs E, central London
Mrs E has been telling HMRC of her circumstances every year but "every year they get it wrong". Disabled, receiving Housing Benefit, Mrs E is being asked to pay £440 in relation to three small pensions.
Tax Help for Older People has a client group biased towards honesty. They are the kind of people who volunteer information to HMRC in order to avoid nasty surprises. Brought up to be wary of debt, many in this age group would prefer to pay too much, rather than too little, tax. Mr Millard says: "With our clients, it is clear to us that they couldn't possibly have understood why these underpayments arose." That is why he expects to be helping about 19 out of every 20 who come to him to fight the HMRC notice.
* 020-7667 1832; 0300 057 1111; www.adjudicatorsoffice.gov.uk
Citizens Advice Bureau
* www.adviceguide.org.uk or contact local branches by telephone
HM Revenue & Customs
* www.hmrc.gov.uk * Student tax checker: http://stccalculator.hmrc.gov.uk/UserDetails.aspx
* Reclaiming tax: http://www.hmrc.gov.uk/incometax/overpaid-thro-job.htm
* Delays in collecting tax: http://www.hmrc.gov.uk/esc/esc.htm
* Understanding your P800: http://www.hmrc.gov.uk/p800/index.htm
Low Incomes Tax Reform Group
Tax Help for Older People
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 2 Gingers face extinction due to climate change, scientists warn
- 3 Brazil vs Germany World Cup 2014: In defence of Mesut Ozil - the Arsenal midfielder works magic in the shadows
- 4 Pornhub pleads with users to stop uploading videos of Brazil 'getting f**ked by Germany' in World Cup match
- 5 Give childhood back to children: if we want our offspring to have happy, productive and moral lives, we must allow more time for play, not less
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£250 - £295 per day + competitive: Orgtel: Financial Accountant - IFRS - Glouc...
£30000 - £40000 per annum + excellent benefits: Deerfoot IT Resources Limited:...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£35000 - £40000 per annum + Benefits: Ashdown Group: HR Advisor - 6 Months Fix...
Day In a Page
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams