The Fizz! Blog

Making the PAYE fiasco worse

Given that HMRC have discovered overpayments and underpayments of tax for millions of PAYE employees, it would be really helpful if they could communicate clearly to taxpayers what has happened.

I've a tax calculation in front of me issued by HMRC to a taxpayer for last tax year.  On the first page it says "Your personal allowances exceed your taxable income, no tax is due".

This is literally true, but completely misleading - the person in question has had tax deducted from their income, and since their tax bill for the year is zero they are entitled to have that repaid to them.  Why on earth can't HMRC put "you are due a refund" somewhere on the cover sheet rather than "no tax is due"?

It's by no means certain that the refund will be issued automatically without the taxpayer requesting it, and I can guarantee that thousands of people will look at the front page and mistakenly believe they're not owed money.  Whoever has come up with the template has thought of it just from their own perspective, and given no consideration to the recipient at all.  If you get a tax calculation from HMRC, read all of the pages!

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Are Sage really this hard up?

Last July we bought a copy of Sage 15.  We needed it because of the clients we have using it.  Sage is OK, as accounting software goes.  It is the epitome of adequacy.  It does double entry bookkeeping accurately.  If anyone tells you it's rubbish, they're wrong.  It is acceptable.

We then got an unsolicited invoice from Sage for a 12 month SageCover support contract, which we didn't want.  We told them that, and received a letter saying they were sorry we had cancelled our SageCover (not true, by the way, we had never wanted it to begin with) and asking us to reconsider.  In any case, it would appear that they had acknowledged our desire not to pay them for SageCover.  Fine, not a problem.

To my surprise, 14 months on (not 12 months, note) we've received a new invoice for 12 months SageCover until September 2011.  Obviously we're not going to pay it - though we still have the hassle of telling them to cancel it - but I imagine plenty of businesses would.  It's the equivalent of the bogus data protection, domain name or web directory invoices that are sent out by unscrupulous businesses to companies in the hope of payment being received out of inattention or confusion.

Rather than unticking the box on their database saying "customer has SageCover" (which should never have been ticked in the first place), instead they seem to have ticked a box saying "customer doesn't want SageCover, but in 14 months let's try sending them another unsolicited invoice for £40 + VAT on the offchance that they pay it by mistake.  Don't send it in 12 months, that would be idiotic, they'll be expecting it then.  Send it in 14 months, they'll have dropped their guard.  It's worth a go".

It's an odd sort of way for a reputable (which they generally are, whatever the Sage-haters say), listed company to conduct its business.  Are they really that desperate for revenue that they'll just send out speculative invoices on the hope that some will be paid?

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Be sure to pass post from the taxman to your accountant

Where a taxpayer has notified HMRC that they're using an accountant, HMRC will generally send copies of important letters and documents to the accountant as well as to the taxpayer.  This is generally a good idea because often the taxpayer either won't appreciate the significance or inaccuracy of a document, or will lose it.

As part of government cost-cutting, HMRC have announced that they're going to stop sending copies of some of these documents to accountants.  That's a bit of a pain, because some of the documents in question are quite significant, and generally of more practical use to the accountant than the taxpayer.  For example, the letter to a newly self-employed individual telling them their Unique Taxpayer Reference is of minimal interest to the taxpayer, but if we're not advised of the number and the client misplaces it, then it's a real time-consuming pain finding out what it is.

It's probably a reasonable economy for HMRC, as it will save them paper and postage, but it's a false economy for the UK as a whole, as the resources they save will be exceeded by the extra burden placed on taxpayers and accountants as a result.  Hopefully in the future HMRC's electronic systems will work better and this won't be an issue - when the cost of paper and stamps is a significant factor in decision making then that gives you a pretty good idea that an organisation is somewhat behind the times.

In the meantime, if you receive anything from HMRC, don't take it for granted that your accountant has a copy.

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HMRC's tax demands - can you refuse to pay?

As you'll no doubt have noted from the extensive news coverage, HMRC have realised that 1.4 million taxpayers have been underpaying tax as a result of HMRC database problems.   Today is the day that the first demands will start arriving on taxpayers' doormats.

It appears that the problems largely relate to taxpayers' PAYE codings not being adjusted to reflect 'benefits in kind' like company cars and medical insurance provided to them by their employers.  Every employee is issued with a PAYE coding that tells their employer how much tax to deduct from their salary.  If you have, say, a company car, you are issued with a code that results in your paying more tax than would have otherwise been the case.

Anyone who has been submitting tax returns shouldn't be affected by this, by the way - on your tax return, you'll have declared your income and benefits in kind to HMRC and paid over any tax owed as a result, either in a lump or by having your PAYE coding adjusted for a subsequent year.  If HMRC had failed to issue you with an appropriate PAYE coding, you'd simply have paid more tax after submitting your tax return.  It all comes out in the wash.  It appears that it will be those who don't have to submit returns who are affected here.

There's also a great deal of coverage about the possibility of escaping paying underpaid tax by claiming under "Extra Statutory Concession A19".  That's a piece of HMRC guidance that - I'm paraphrasing here - says that if a) you could reasonably have believed you were paying the right amount of tax and b) HMRC had all the information they needed to determine that you were paying the wrong amount of tax then, once 12 months have passed, it's too late for HMRC to ask you for any tax owed.

Whilst it will certainly be worth making an application under A19, I think success will be determined by item a).  If someone's PAYE code isn't updated to reflect the tax due on your company car, is it reasonably to believe that you're paying enough tax?  Undoubtedly, few taxpayers understand their PAYE code.  If it's changed and they take home more money, they'll probably be happy, but if it's changed and they take home less money they'll grumble.  Is it reasonable to take no interest in it, and just accept what the system gives you?  I'm not sure.  It's a grey area.  Part of me thinks that, if you're going to just go with the flow then you ought to be consistent - if you unwittingly pay too little tax, fine, keep it, but if the mistake gets uncovered, tough, pay up.  But at the same time, the whole point of the PAYE system is that it's supposed to get these things right so that taxpayers don't have to worry about it.

And there's a question of degree too.  Is it reasonable to not realise you're failing to pay £8 tax a month on your company BUPA scheme?  Probably.  Is it reasonable not to realise you're failing to pay £200 tax a month on your company BMW?  Maybe not.

In any case, it will be interesting to see if taxpayers successfully avoid paying.  We can't see many, if any, of our clients being affected - they've largely been submitting tax returns all along - but if you receive one of these demands, do let us know.

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