Tax professionals will be well aware that HMRC has the right to revise an individual's tax submission, on the assumption that there is evidence to show that the submission contained errors, even if it is up to 6 years old.The result being that tax paid in previous years may turn out to be over/underpaid.
Unfortunately, not everyone is a tax professional (nor indeed can most people afford to pay a tax professional). The average taxpayer (trusting that their employer and HMRC have managed to get the numbers right) will have assumed that once the tax is paid, that is that.
As we now all know, from the recent issue wrt tax reconciliations, HMRC have discovered that there is a significant amount of unpaid tax (£2BN) over the last two years owed by approximately 2 million people due to errors in their Pay As You Earn (PAYE) tax code.
HMRC are in the process of sending out letters to people who they have identified as owing them money.
However, it seems that this is but the tip of the iceberg and many more people will be on the receiving end of a demand for underpaid tax.
For why?
HMRC is extending its investigation (PAYE reconciliations) into earlier years, as it has every right to do.
HMRC has admitted that it is struggling with a backlog of 17.9 million "open case" files, with almost 2 million dating back to 2004.
As noted, HMRC has every right to issue revised assessments for earlier years. However, many taxpayer will simply not be in a position to (or indeed expect to have to) pay several years of underpaid tax.
The issue is not merely one of "reconciling" open items, but one of politics and understanding human nature when it comes to people's attitude to "money in their pockets" and taxes.
The demands for the underpaid tax of the last two years will spark considerable anger, were the government and HMRC to push ahead with demands going back six years the political fallout and public anger will be unimaginable.
Good luck with that then!
Tax does have to be taxing.
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"unimaginable" - well I know you don't lack imagination, Ken, so that's pretty strong! :)
ReplyDeleteInteresting point re public understanding. Yes, people don't understand the tax system well, but why should they be expected to? Yet another argument for real-time PAYE! (Implemented through a successful IT project, of course...hmm.)
Any chance you could post a reference to the article(s) about reconciliations being done back to 2004, btw? Thanks.
Fair play you don't want the underpayments but you'd sure as hell want the overpayments ... can't have it both ways.
ReplyDelete@ Anon 15.51
ReplyDeleteThe NAO report highlighted the 18 million open cases back in July. This has been within the public domain for a few months but seems to have gotten mixed up/overlooked what with all the chaos over the last 2 tax years. In fact I think they are probably rooted in the same issue so I was really surprised the media did not run the story from an 18 million open cases point of view originally.
NAO report can be found here (you'll see the 18 million cases is the first thing referred to in the highlights): http://www.nao.org.uk/publications/1011/hmrc_accounts_2009-10.aspx
I've commented on here before there have been open cases for as long as I have worked for the IR now HMRC.What's changed? people's affairs will always need to be assessed at the end of the year, that's the way it is, that's the way it will be.
ReplyDeletePeoples circumstances are fluid where benefits, allowances etc are in the mix. PAYE is and always has been a payment on account system, PAYE can't always get it right if there's a delay in processing information whether from the taxpayer, employer or post baglogs or processing work times.
If the government/HMRC decide to write off the millions of underpayments for the earlier years what about all the people who have already paid them after receiving the assessments before April 2009? Most, if not all, will have paid it back by now. What about the people who have had underpayments during that time under self assessment?
ReplyDeleteWhat is your alternative Ken?
@ Anon 22.13
ReplyDeleteAgreed. I think anyone working in tax knows PAYE is a year end reconciliation process and always has been.
However, as most taxpayers are PAYE and as such have negligible interaction with any form of UK tax it should be no surprise that most people know very little about how tax works. It's a symptom of the system but that's a different thread!
The issue, to my mind at least, is not that there are open cases but that some of these cases are 6 years old. I am not a HMRC employee so I am not privy to how the system works but I think it's fair comment to say that 6 years is too much.
In 'Customer Operations', we're told in most cases to go back before 09-10 only if the 'customer' asks us to.
ReplyDeleteIt's a taxational form of Russian Roulette...
The reason why there are so many open cases is that there is an ever deceasing number of staff to deal with the yearly review,It takes time to review each case which does not fit into the chase for KPI production figures under Lean and Pacestter.
ReplyDeleteHowever i don't remember any crying and complaining from the accountancy profession when our jobs were being slashed.
You get the service you're willing to pay for and with no fault of the staff the service at the moment is piss poor....
@ Anon 00.34
ReplyDeleteOn the contrary. I think what's happened to IR is an absolute disgrace. I would like to put it in stronger terms but this is a public forum. You have my sympathy (for what it is worth) I can assure you.
@ Anon 00.34
ReplyDeleteI am with Smurf on this as well. As the owner of a small business and married to a member of HMRC staff I see things from two very different points of view. You all have my sympathy and if I could wave a magic wand I would. Now could you please get back on the phones and stop reading this blog.
Anon @ 2 November 2010 00:34
ReplyDeleteSo now we have the truth. 'There is an ever deceasing (sic) number of staff to deal with the yearly review'.
Are they all culled at their desks, or is the suicide rate now at epidemic proportions?
Now could you please get back on the phones and stop reading this blog.
ReplyDeleteI suspect this was a tongue in cheek comment, but HMRC Contact Centre staff and the majority of other staff (except those involved in compliance and the ex customs staff) do not have access to the Internet at work. There is the intranet site and a copy of the HMRC site (and I mean a backup copy of the pages on the site, like when you press 'Save page as' on a website; no dynamic content e.g. no access to online services)
Even if they did, HMRC staff are blocked from accessing the site at work, as Ken is well aware. See this page.
So for those who would like to add timewasting on the internet to the long list of unfounded accusations made about HMRC staff on this site, I have an orange card on it for you that says - "Go back to Old Kent Road".