We thought you might be interested in this recent case.
Our client base is mainly small businesses, but we were approached earlier this year to act for a client who was taxed solely under PAYE.
The Background
Our client worked for a local authority. In October 2002, she retired from that role and started receiving an occupational pension. At the same time, she started employment with a major UK charity.
She gave her P45 to her new employer, and completed a form P160 given to her by her pension provider, which was subsequently sent to HM Revenue and Customs (HMRC). This form would determine the tax code for her pension.
However, she was given the standard personal allowance from her new employer AND her pension provider, meaning that she didn’t have enough tax deducted from her income. She hadn’t noticed this anomoly. To compound matters, the two sources of income pushed our client into higher rate tax.
This situation continued until 2010, when our client retired from her role with the charity. At this point, HMRC noticed that our client had been receiving the benefit of two personal allowances, and calculated the tax underpaid, going back 3 years.
The amount was just over £8,900.
At this point, we were appointed.
The Approach
Common sense suggests that the tax is due. Unfortunately, it was not collected through the PAYE system as it should have been. However, there will be many people reading this that would be horrified if they found themselves in this position, particularly as all the income passed through PAYE schemes which were administered by two large organisations. Our client has limited financial knowledge, and assumed that in her circumstances her tax obligations were being fulfilled.
So our approach was to apply Extra Statutory Concession A19 (ESC A19). This is a concession given by HMRC which states:
Arrears of income tax or 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:
- an employer, where the information affects a taxpayer’s coding.
We provided copies of our client’s P45, P160 and P60 from the 2002-03 tax year, showing that the correct documentation had been completed and submitted. We also sent a copy of a letter received from the pension provider which outlined their policy for dealing with retirements.
The Outcome
We were thrilled to receive confirmation that HMRC agreed that ESC A19 should apply and that the tax would not be collected.
In this case, the onus was obviously on the taxpayer proving that the conditions had been met which meant that the concession applied. Without the copies of the documentation (from 2002-03), we would not have been successful.
This case highlights several important issues:
- Keeping documents which may be required for tax purposes (if our client had observed the ‘keep records for 6 years’ rule, the vital documents would have been thrown away).
- Not only being aware of the tax legislation, but being able to follow it through when HMRC have provided calculations which suggested, using common sense, that a lot of tax was due.
- Even if you have employment/pension income, your tax code may not be right. In this case, insufficient tax was deducted. However, we have also seen cases where too much tax has being deducted.
As a footnote, we obviously cannot guarantee to reduce client’s tax liabilities on such a large scale every time, but we will try our best!
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