PAYE calculations - don't overdo the hype

Low Incomes Tax Reform Group (LITRG) is all for bringing HMRC to account when it has let down the low income population; but we are also clear that we want good and accurate information to be provided to those same people.

With very little notice we provided short-term solutions to a short-term issue for the 45,000 people who could have been affected by the HMRC initial trial run. The background to the current difficulty has been lost in the hysteria and low income people may be being scared unnecessarily.

The tax calculation saga is, in some respects, now getting out of hand and misinformation is rife. We think it is helpful to just correct a few of the misunderstandings we have seen in the last few days.

New computer system

The millions of tax calculations which will probably be sent out later this year are a result of the new computer system doing its job properly, not through some big mistake.

The mistake on launch of the collection/repayment exercise has been in not preparing the ground properly for the ‘customers' of HMRC or taking into account adequately the impact upon low income families.

PAYE is a good system and people should be careful what alternatives they might wish for. The new government is looking imaginatively at how it can be improved in the future and all power to their elbow in that endeavour.

Until any more advanced concept is adopted, the new computer system will improve the PAYE situation in the next few years. It should be more accurate and it will deliver repayments quicker. It is a shame it was not introduced on time three years ago as planned.

Extra-statutory concession A19

A19 has been subject to much misleading news coverage.

Many papers and news programmes refer to it as a ‘loophole', a ‘tax dodge'. It is neither of those things. It is an open, public policy statement by HMRC which seeks to remove possible unfairness where a person is unexpectedly asked for arrears of income tax, or capital gains tax, that have arisen because HMRC have delayed in using information. True, HMRC have in the past been reticent about its existence, but that does not turn it into a ‘loophole'.

Here again are the main points of the concession.

HMRC may decide to write off arrears of tax if:

- they have failed to ‘make proper and timely use' of information they have received from the taxpayer, from the taxpayer's employer about their PAYE, or from the DWP about the taxpayer's state retirement pension, or disability or widow's pension; and

- the taxpayer ‘could reasonably have believed that his or her tax affairs were in order'. It is not enough that the taxpayer actually believed this; HMRC must be persuaded that it was reasonable for the taxpayer to believe it, bearing in mind individual factors such as their knowledge of tax, state of health, and so forth.

In respect of this last point, we want HMRC to appreciate that most people, if they receive a notice of coding - or indeed any official communication from HMRC - will trust it to be right, even against their own better judgment, particularly if it looks plausible.

In considering their approach to A19 at this particular time HMRC should, in our view, take into account the multiple difficulties that have been placed in the way of the low income population over the last few years. Incorrect codings, inordinate delays in answering the phone and reduced face to face advice, to mention but a few.

HMRC have provided a telephone number to ring if you want to ask them to consider applying A19 in your case. Their website states:

‘If you think this concession applies to you, then you need to telephone HMRC on 0845 300 0627 indicating that you are making a claim under ‘ESC A19'. You will need to provide the following information:

what tax year and underpayment the claim relates to
what information HMRC failed to make proper and timely use of and any supporting information
what date this information was provided
reason(s) why you thought your tax affairs were in order prior to receiving the Tax Calculation

HMRC will consider your claim but may need to verify details with you before giving you a decision.'

You should be sure of your facts before embarking upon such a conversation.

Small underpayments of tax

Speaking in the House of Commons yesterday, David Gauke MP, the minister in charge of the tax system, said that HMRC would not seek to recover small sums of less than £300.

This is welcome news.

He also said that that ‘no immediate one-off payment will be required'. Recovery would start next tax year. Amounts of less than £2,000 will be collected through the PAYE system, while in respect of larger amounts HMRC will ‘contact the individual to discuss the issue'. We hope that HMRC's debt management teams will carry out this task with a proper understanding of people's ability to pay.

For more information, visit litrg.org.uk.