Tax System Blunder Increasing Personal Debt Woesposted on 8 September 2010 | posted in General Category | ( 0 ) CommentsMore people were receiving demands for back-tax today amid warnings from the Government that they have little chance of escaping payment Treasury minister David Gauke said those affected by a HM Revenue & Customs blunder should not "build up their hopes" that appeals will succeed. The intervention came after HMRC started sending out nearly six million letters to individuals who paid too much or too little income tax. Around 4.3 million people are due a rebate, but some 1.4 million will have to hand over an average of £1,428 each. Experts said people hit with an unexpected tax demand may be able to refuse to pay up as HMRC could have exceeded its own time limits in which to ask for the money. Under tax rules HMRC must issue demands for underpaid tax within 12 months of the end of the tax year in which it became aware that people had underpaid. But if people provided all the information needed to get their tax code right, HMRC should have used these details within 12 months of the end of the tax year in which it was received to claw back the extra money. If HMRC failed to do this, taxpayers can ask for an Extra Statutory Concession, also known as an ESC A19. The latest round of errors date back to April 2008, meaning anyone who alerted HMRC to changes in their circumstances that affected their tax code before the start of the new tax year in April 2009 may be able to cite this clause. But Mr Gauke insisted experience had shown that "very few" appeals against payment demands succeeded. "Of course the Government is very keen that everybody who is in a position of having underpaid their tax is treated sympathetically," he told BBC Radio 5 Live. "It's fair to say there has been a fair amount of press coverage about the possibility to appeal and that is right. There is a concession that can be available. "Our experience is that, because this issue is not entirely new - it is the fact that there are underpayments every year with the PAYE system - our experience is that very few of those appeals succeed. "Some do and we do not deny that, and we are looking to see how that process can operate. "But I don't want people to build up their hopes too much and think that there is a sort of panacea. "The fact is most of these appeals are unsuccessful." Asked specifically about the ESC A19 concession, Mr Gauke replied: "There will be some cases where it will be applicable here but as I say the experience that HMRC have had is that it will only apply in a very small minority of cases, and almost certainly it will not apply at all for anything relating to the 2009-10 tax year, because it is very recent." However, he did signal that people could be given time to find large sums."We do have to look at issues where there is hardship. We look at the timescales in which something like that would have to be paid," Mr Gauke added. HMRC has sent out the first 45,000 letters to people who are affected, around 30,000 of whom are due a rebate, while 15,000 have underpaid tax. The remainder of people affected will be contacted between now and Christmas. Angela Beech, partner at chartered accountants Blick Rothenberg, said: "Those that receive these demands need to think before they automatically pay up. "If you had given HMRC information that would have enabled them to adjust your tax code to make sure that you did pay the right amount of tax, then, if the time limit has passed for them to use that information, they cannot pursue you for the unpaid tax." She said HMRC was likely to ask for proof that people had informed it about a change to their circumstances. But she added: "If you have got evidence or know that you supplied information, then you really should consider appealing against the demand to pay." Tory MP Michael Fallon, a member of the Treasury Select Committee, told BBC Radio 4's Today programme: "There may well be a case for waiving amounts that are relatively small. "And certainly I think people should be entitled to a bit of grace before they have to make these repayments." A total of £2 billion has been underpaid through the PAYE system over the past two years, while £1.8 billion was overpaid.People who have underpaid and owe less than #2,000 will be able to have the money deducted from their salary on a monthly basis during the 2011/2012 tax year. But those who owe more than £2,000 will have to pay it to HMRC in a lump sum. It is believed that, in some cases, individuals may face both under and overpayments, which could cancel each other out. Every year HMRC checks that the amount of tax and National Insurance deducted by the employer matches the earnings information held on its records. The wrong amount of tax may have been paid if people failed to tell HMRC about a change to their circumstances, such as starting a new job, having more than one job, or receiving a new benefit through work, such as a company car. As of April, there was said to be a massive backlog of 18.2 million cases where earnings data did not match the amount of tax paid. The number of discrepancies rocketed this year largely due to the use of a new IT system, which holds all the information on an employee in one place, rather than having it spread over several different systems. However, the new system should mean that more people pay the right amount of tax through the PAYE system than previously. We have seen many people who have had debts that have been increased by money owed to the HMRC, and we strongly urge people to contact us if they have this problem. Share this blog entry:
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