Challenging underpaid tax demands from HMRC

Paul Lewis / 08 February 2012

HM Revenue & Customs warned us last year that it would be sending out more than a million demands for underpaid tax. And it is. They have the code P800 on them and they can demand tax of hundreds, sometimes thousands, of pounds underpaid in past years.

Many are not just for mistakes it made in 2010/11 but for earlier years as well. And those can be challenged.

If the Revenue is demanding tax which it says you should have paid in 2009/10 or earlier, you can ask it to ‘give up’ the demand under what is called Extra-Statutory Concession A19. You have to show three things:

1. You or your employer or pension provider told the Revenue about all your sources of income for that tax year.

2. HMRC did not use this information to change your tax code or collect the correct tax ‘in time’. That means by the end of the tax year after the tax year in which you gave this information. So if you are now being asked for tax due in 2009/10 and you gave it all the information it needed in 2009/10, HMRC should have contacted you about it by 5 April 2011. Asking you now is too late.

3. You had a reasonable belief that your tax affairs were in order. A belief is not enough – that belief has to be reasonable. Most of us trust the Revenue to collect the right amount of tax and if you were sent a tax code and reasonably believed it was correct that should satisfy this rule. Similarly if you believed reasonably that the Revenue had asked your employer or pension provider to deduct the correct amount of tax then that should be enough.

If you pass all three of those tests then you should qualify to have the tax given up under ESC A19.

Six taxes you can legally avoid.

Exceptional circumstances

A demand for tax due in 2011/12 fails the second of those tests as it is within the time limits. However, you can still ask for that to be written off as well if it is linked to underpaid tax for earlier years and the same mistake has led to the wrong tax being collected in 2010/11 as well. That is called the ‘exceptional circumstances’ rule – still under ESC A19.

To apply you should write back to the tax office that issued the P800. Set out your letter under those three headings and see what happens. Thousands of these applications have succeeded and the more clearly you set it out the better your chances.

If your application is rejected write back and ask for it to be reconsidered by a more senior officer. If that fails then you should write to your MP and ask him or her to pass on a complaint of maladministration to the Parliamentary Ombudsman for not applying its own administrative procedure of ESC A19 correctly.

Useful links

Official HMRC information is available here.

Unofficial guide by Low Incomes Tax Reform Group.

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