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Tax error letters: what are your options?

HMRC has announced that they will not pursue cases where the amount owed is less than £300.

Over the next few weeks some people who pay tax through PAYE will receive notification from HM Revenue and Customs (HMRC) that they have either underpaid or overpaid tax for the last two years.

This is due to the introduction of a new computer system which has brought to light “some discrepancies in our existing records” (HMRC). In total nearly 6 million people across the UK have been paying the wrong tax with HMRC trying to recover £2 billion in underpayments and repaying £1.8 billion in overpayments. The first 45,000 taxpayers should receive letters today telling them that they have paid the wrong amount of tax with the remaining taxpayers to be contacted between now and Christmas.

The notification that some people may receive is called a Tax Calculation (form P800) and will state whether too much or too little tax has been paid for the tax years 2008/09 and 2009/10. The calculation shows the total income and the allowances that are due for each of these years. Not everyone will get a calculation, only those who have paid too much or too little tax. This is not a demand for tax and represents a calculation only.

Anyone who receives a Tax Calculation should check it very carefully to make sure they agree with all the information given and that HMRC have got all the facts right, for example, does it state the right jobs and the right pensions. They should also check the figures on the calculation against their records if they have them. Notes will be sent with the calculation and they should be read as they may help people to understand what it means. If they don’t agree with the calculation they should contact HMRC on 0845 3000 627 and tell them why. They can also write to HMRC at the address shown on the calculation with the details.

Some people will receive notification that they have paid too little tax. If the amount owed is under £2,000, HMRC will automatically collect the money from a person’s pay during the tax year 2011/12. This spreads the repayment throughout the year but it is possible to ask to pay it back over a longer period of time if this would cause hardship. If the amount owed is £2,000 or more, HMRC will write and ask for a lump sum payment but this can be paid back in installments rather than all in one go in cases of hardship.

Some people will receive notification that they have paid too much tax. It is important that these people also check their calculation carefully to ensure that they have been paid back the correct amount of money.

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In certain very specific circumstances, it may be possible to argue that HMRC had all the information they needed to calculate a person’s tax correctly but did not use it at the right time. Anyone who is able to argue this, may be able to persuade HMRC to write off the underpayment. A procedure called the extra statutory concession allows HMRC to write off tax if it was provided with all the relevant information but failed to use it within twelve months of the end of the tax year in which the information was received. However this very much depends on the specific circumstances of each case and on whether HMRC thinks that the taxpayer should reasonably have known they were underpaying tax.

Further information and advice on this issue is available from your local Citizens Advice Bureaux. Further information is also available at the Low Incomes Tax Reform Group website at www.litrg.org.uk or HMRC’s website at www.hmrc.gov.uk.

Siobhan Harding is an Information and Policy Officer with Citizens Advice