By Chas Roy-Chowdhury, head of tax, ACCA
The holiday season is over and, as night follows day, tax problems have returned. This time it's problems with the PAYE system, which are resulting in around 1.4 million people being told they have underpaid their tax bills.
The problems have been caused by the PAYE system's inability to keep up with modern working practices. The system was created in 1944 when people usually stayed in one job their whole lives; things are different today of course, with people switching jobs, working overseas or receiving tax credits.
Sudden demands for thousands of pounds from HMRC – and remember many of the problems are because it was HMRC, not the taxpayer, that got their sums wrong – can cause serious cashflow problems for individuals and families, especially those on lower incomes. However, there are cases when HMRC's P800 form (the form they are sending out) can be challenged.
This will occur where HMRC had the correct information about your tax affairs for 12 months after the end of the tax year. When the demands from HMRC relate to the 2008-9 tax year, they could be challenged. While this concession won't affect every case, it's worth a try.
To help, I've drafted the following template letter that can help people challenge the demands under the special concession.
'I am in receipt of the P800 tax calculation for the 2008/9* and 2009/10* tax year(s) (*delete as appropriate)
The calculations indicate that I have a further tax liability. As income tax is deducted at source from my income under PAYE and you were in possession of all relevant facts regarding my salary/benefits in kind/pension income* (*delete as appropriate), and have been since (insert relevant date), I have been unaware that my tax affairs were not in order.
I therefore wish to apply under the provisions of Extra Statutory Concession A19 that the underpayment of tax now being demanded should be written off, on the following grounds:
- EITHER: The demand for further tax was issued more than 12 months from the end of the tax year in which HMRC was provided with the relevant information to calculate my tax position correctly
- OR HMRC have allowed arrears to build up over more than one complete tax year, despite all relevant information having been provided to you
- OR HMRC have failed more than once to make proper use of the relevant information provided to you about my income.
I look forward to receiving your confirmation that the further tax liability will be written off accordingly.'
For more help, contact a qualified accountant (those of you with accountants will need to send a copy of the P800 on to them, as HMRC won't have sent them one) or, for some useful HMRC website links, you can read the article I wrote for the BBC last week.
Note: The template letter first appeared in the Sunday Times on 12 September 2010