What to do if you receive an unexpected tax demand

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Guest article by Elaine Clark of Cheapaccounting.co.uk

If you get an unexpected tax demand from HM Revenue and Customs (HMRC), what should you do? Here, accountant Elaine Clark gives some advice and tips.

How HMRC handle tax demands
Having handled many such tax demand cases, ranging from £1,000 up to over £9,000 our experience to date has been:

– HMRC can take an excessive amount of time to respond to correspondence. There may be unacceptable or unexplained delays.

– HMRC are not always consistent in their approach Some people may have their tax bill written off whereas other similar cases may have to proceed to the complaints stage.

– HMRC will nearly always reject your case initially.
Persistence through to complaint and adjudication is the only way to get your tax demand dealt with correctly

What to do if you have a tax demand
Here is my advice on how to deal with your letter from HMRC …..

Stage one
Of course you should always check that the tax demand is correct. Assuming it is correct, then check  HMRC is within their time limit to collect any underpaid tax.

However if you can show that the error was not your fault then they should collect the tax from your employer or pension provider and not you. Often the reason for the underpayment is that your employer or pension provider has not followed the PAYE procedure correctly and has made an error.

ELAINE’S TIP: In this case the law states that HM Revenue and Customs should seek the underpaid tax from the employer or pension provider and not the individual. Of course you must be certain that it is your employer or pension provider that did make the error.

Checklist:
Did you tell HMRC and/or your employer about a change in your circumstances e.g. a new or second job, additional income or a pension?

– If this is the case, and you have paperwork to show this to be the case then the error is not your fault.

– Rather than re-invent the wheel for a sample letter to send to HMRC, the Low Incomes Tax Reform Group prepared sample letters and these can be found on the Guardian website.

– Use the text for letter two “If your employer/pension payer made an error” and send this to HMRC.

– HMRC may well reject your request to reclaim the tax from your employer or pension provider.

Stage two
Do not give up if HMRC rejects the write off. The next stage is a complaint. You can read more about how to make a complaint to HMRC at how to make a complaint.

The following is the sample text for you to copy for your letter of complaint to HMRC:

Dear Sir/Madam
Your Name here
National Insurance Number — your NI number
HMRC reference number — the reference on the letter
Complaint — Handling of Underpaid Tax

Thank you for your letter of (enter the date of the letter from HMRC).

I would like to raise a formal complaint regarding this matter.
I had provided all relevant information to my employer/pension provider [delete as applicable]. The underpayment arose because of a failure by my employer/pension provider [delete as applicable] to operate PAYE correctly. Given this you must reclaim the underpaid tax from them and not me.

To tell me that I should repay the underpaid tax is incorrect and I do not agree with your decision.

Could you please:

– acknowledge receipt of this complaint letter, by return
– advise me of the complaints procedure and how long it will take for you to review this matter
– let me know your outcome and the reasons for reaching your decision

I look forward to hearing from you and hope that this matter can be resolved very quickly.
Yours faithfully

[Your name here]

Stage three
If HMRC still refuse to accept your case then you take the matter to the adjudicator. We recently heard from a taxpayer who had over £2,500 written off after he took his case to adjudicator. So despite this being a very scary prospect, it really can work.

ELAINE’S TIP: Obviously no one likes a tax evader but that is NOT what you are. So my message to tax payers would be: if you are right — fight and fight hard.

Related articles:

Tips on filling in your self assessment tax return

VIDEO: How to save inheritance tax

5 tax tips if you sell things online

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