The big PAYE tax fiasco

Deborah Edwards

Have you been hit by HMRC’s tax blunder? Harland Accountants’ Deborah Edwards has some timely advice

The current tax fiasco at HMRC is creating ripples of panic across the UK as 1.4 million people can expect a tax demand to burn a hole in the Welcome Mat anytime between now and January 2011.

A newly installed IT system revealed errors in the Year End information for 2008/9 and 2009/10 and although pressure from Westminster forced HMRC chiefs to apologise, they still want their cash back.

Of course 4.3 million PAYE tax payers will get a rebate, but if you’re not one of the lucky ones it’s important you know what to do the day the letter (known as a P800) arrives through your letter box.

Incorrect letters have been issued

It is natural to assume big powerful government organisations like HMRC are always right but that’s not the case. There have been errors so make sure you do the maths and check the demand, have your P60s, payslips, P11Ds and self assessment tax return to hand. If you don’t agree with the calculation speak to your accountant or call HMRC on 0845 3000 627.

If there is an error and it turns out that the employer or pension provider has not operated PAYE correctly, then HMRC should contact the employer to correct the shortfall. Also be aware of internet scams, i.e. HMRC imposters ‘phishing’ for personal information. Remember HMRC will never contact you by email.

Who will be affected?

The PAYE tax demands will affect employed people including company directors, especially those receiving benefits such as a car or with fingers in a few pies i.e. people who are also self employed or have a rental property.

On a more positive note if you are in the self assessment system and represented by professional advisers you are unlikely to be affected.

Paying it back

The good news is that demands of less than £300 will be written off but those owing less than £2000 will have PAYE collected through monthly instalments from April 2011 in their tax code, which can have a significant impact on a household income. If you want to pay it back in one lump sum then contact HMRC.

For demands of more than £2000 you can negotiate payback periods of up to three years interest free. However, if paying the amount back will cause you hardship than HMRC may consider a freeze on the repayment but this may change should your circumstances change.

Are HMRC in time?

This is something HMRC isn’t shouting about but where all the information has been submitted and HMRC has failed to act within 12 months of the end of the tax in which they received the information, there is a good argument for the sum to be written off. This is pertinent for errors made in the 2008/09 tax year as the deadline has now passed.

Remember these are only guidelines and every case is unique. Harland Accountants strongly recommends seekingprofessional advice before proceeding if you are unsure in anyway.