HMRC Tax Error. The Facts.

Almost 6 million people have been caught up in what has been dubbed a huge tax blunder. Here we look at who is affected and what they can do.

What's happened?

In a nutshell, around 4.3 million people have paid too much tax through the Pay As You Earn (PAYE) system, while HM Revenue & Customs says a further 1.4 million people have not paid enough tax.

How has this happened?

Every year, HMRC checks that the amount of tax and national insurance deducted by the employer matches the information held on its records. This is called the "end of year reconciliation" process.

However, this wave of errors is linked to the introduction in June 2009 of a new IT system, which holds all the information on an employee in one place, rather than having it spread over several different systems - making it easier to see if people have paid the wrong amount of tax.

The Revenue admitted a few months ago that the transition to the new system had "brought to light discrepancies... and this is resulting in a number of incorrect [PAYE coding] notices being issued".

This same system is now being used to do the reconciliation process for the tax years 2008-09 and 2009-10 - resulting in these new underpayment and overpayment calculations.

What sort of people are affected?

The wrong amount of tax may have been paid if people failed to tell HMRC about a change to their circumstances, such as starting a new job, having more than one job or receiving a new benefit through work, such as a company car. Individuals may also have paid the wrong amount of tax if their employer has used the wrong tax code.

How do I know if I'm one of them?

HMRC this week began sending out the first batch of letters to around 45,000 of those affected. It will contact the remaining people between now and early January. "Most people have paid the right amount of tax so won't get a letter from us with a revised tax calculation. So don't worry if you don't receive a letter (and there is no need to contact us if you haven't received one)," says the Revenue.

How does the Revenue intend to take the money back?

If you owe less than £2,000, you won't get a bill - instead, your tax code will be changed from April 2011. Effectively, you will pay it back in monthly instalments deducted from your salary during the 2010/2011 tax year.

If you owe more than £2,000, you must repay the amount in a lump sum.

Do I have to pay up?

Some experts said people hit with an unexpected tax demand may be able to refuse to pay up as Revenue & Customs could have exceeded its own time limits in which to ask for the money.

The Low Incomes Tax Reform Group said any calculations produced by HMRC which result in an underpayment of tax should be treated with caution. It is urging recipients to "check and challenge" them.

"The underpayment may have arisen because HMRC have failed to make timely use of information about you which they have had in their possession," said the group. In such cases, individuals have the right to ask for the unpaid tax to be written off through what is known as an "Extra Statutory Concession" or ESC A19.

The rules state that if Revenue & Customs was provided with all the necessary information needed to correctly attribute a tax code, it should have used this within 12 months of the end of the tax year in which it was received to claw back the full amount of money. As a result, individuals cannot normally use ESC A19 to ask for tax owing for 2009/10 to be written off, but a group spokesman said: "If HMRC have persistently got something wrong year after year, we would expect them to write the tax off for all years up to and including 2009/10."

Is there some help available?

The Low Incomes Tax Reform Group was one of the first to produce sample letters that those affected can tailor to their own situation and send off to HMRC in an attempt to get the underpayments waived. Its guide, including the template letters, is available from the LITRG website via the link: http://tinyurl.com/taxletters

What if I can't afford to pay back the money?

HMRC advises people who genuinely cannot afford to pay the tax to contact it to see if it can come to some arrangement with them. It may be that they can pay some now and some in the future. This will be done on a case by case basis.

What is happening with refunds?

Around 4.3 million people have paid too much tax, and are due average refunds of £420. If you are one of them, a "payable order" (essentially a cheque) should be sent to you within five to 14 days of receiving the letter.

Source: www.guardian.co.uk (To view the original article, click on the heading at the top of this post).

Worried About Renewing Your Tax Credits? New Video Help Is Available.

As 31 July rapidly approaches, many of you will be mindful of the need to complete your Tax Credits Annual Renewal Pack.

For those of you who are still unsure as to how to go about it, HMRC have released a series of brief videos to make the whole process a little simpler.

You can check these out here:

http://campaigns.direct.gov.uk/taxcreditsvideos/index.html?cid=taxcreditsvideos&cre=mainimage

HMRC Introduces New Self Assessment Three Line Account Limit (TLA)

For those of you who complete your own Self Assessment Tax Returns, there has, for a number of years, been a concession in place for smaller businesses, below the qualifying threshold.

Under this concession, full accounting information was not required to be shown on the Return. Instead, the financial position could be summarised in just 3 lines; Turnover, Total Expenses and Profit or Loss, thereby keeping the whole process much simpler.

For the tax year to 5 April 2010 onwards, the limit for providing details of just these three items has been increased from £30,000 for self employed, and £15,000 for those with property income, to permanently bring them in line with the VAT registration threshold (currently £68,000).

This means that, if your turnover is less than the limit, you no longer need to provide a detailed breakdown of your business or property expenses. Instead, all you need to provide is;

• Business Details
• Turnover
• Total Allowable Business Expenses
• Net Profit or Loss
• Details of Any Adjustments, Allowances And Losses

The TLA facility is optional. You are, however, still required to maintain adequate business records. Details of how to do this can be found on one of our earlier posts, at; http://1staddition.blogspot.com/2010/03/hmrc-issues-keeping-records-factsheet.html

New PAYE Late Payment Penalties

Employers and contractors may be liable to penalties if they do not pay PAYE, National Insurance contibutions, Construction Industry Scheme deductions and student loan deductions on time and in full for periods starting on or after yesterday, 6 April 2010.

HMRC have produced a guide to these new penalties, Which apply to all employers and contractors, from May 2010.

These penalties are in addition to any interest charged. Full details can be found on the HMRC website:

http://www.hmrc.gov.uk/paye/problems-inspections/late-payments.htm

2010 Budget. A Quick Summary

Today saw the presentation of Alistair Darling’s much anticipated pre election budget.

Let’s face it, it was hardly going to be an easy task with three main issues to contend with.

The first big challenge for Mr Darling was that of the current financial deficit.

The second headache to contend with is that of unemployment.

Finally, there was the added pressure of knowing that this budget was the last one before the upcoming General Election, with all the media and public attention that would, inevitably ensue.

The Basics

Mr Darling confirmed a growth forecast of 1-1.5% for 2010 and growth of 3-3.5% in 2011. The national debt was forecast to fall from 56% to 54% of GDP in 2009/10.

Borrowing was lower than the £178 billion forecast in the last Budget at £167 billion for 2009/10.

He also predicts the national deficit will fall to £163 billion in 2010/11, £131 billion in 2011/12, £89 billion 2013/14 and £74 billion in 2014/15.

There are a number of reasons why the deficit is not as bad as predicted.

Firstly, there is the income derived from bankers’ bonuses. The super tax was originally introduced to deter high bankers’ bonuses, however, much to the dismay of the banks’ shareholders, these bonuses were still paid, resulting in a £2 billion reduction in the overall deficit.

Secondly, with the announcement of the increase of the top level of income tax to 50%, from 6 April, many business owners will have taken larger than normal dividends from their companies, in order to take advantage of the 40% rate, while they still can.

Whilst this will have swelled the coffers of the Government, for now, it’s likely that, as a result, April will be a particularly bad month.

Also, the return of the VAT rate, to 17.5%, will have had an impact on incoming revenues.

Public sector cuts of £5 billion were announced for the coming financial year and £11 billion of further efficiency savings, with 15,000 civil servants to be relocated out of London within the next five years. Public sector pay rises will be held at maximum of 1% until 2013.

The Highs

There were no new hikes in VAT, income tax, capital gains tax or national insurance. The inheritance tax threshold is frozen at £325,000 for a further four years.

Mr Darling moved to combat financial exclusion with the guarantee that everyone will have a basic bank account under new legislation to be announced.

The child tax credit to increase by £4 a week for one and two-year-olds from 2012.

The guarantee of a job or training for all 16 to 24-year-olds, who have been unemployed for 6 months, was extended, by a year, to March 2012.

The tax-free ISA limits, having risen from £7,200 to £10,200 (with 50% being in cash) will now increase annually in line with inflation.

Help will be provided for first-time buyers, and the faltering housing market, through the doubling of the stamp duty threshold to £250,000 for two years but for first-time buyers only. The measure will be paid for through an increase in stamp duty to 5% for homes priced at £1 million and above, effective midnight Wednesday.

The 3p fuel duty increase previously announced will now be phased in by 1p a month from April, another 1p in October and a final 1p in January 2011. The chancellor also allocated £285 million to improve motorway network and £100 million for the maintenance of local roads.

Higher winter fuel payment for pensioners will be renewed for another year - worth £250 or £400 a year for over-80s. Also, from next month, because of above-inflation increases in the basic state pension, and the introduction of the pension credit, every pensioner will be entitled to a weekly income of £132.60.

According to the chancellor, almost 400,000 more people now go to university than when Labour came to power in 1997.To help support this growing student base, the government will provide £270 million funds in 2010/11, with a specific focus on key subject like science, engineering, tech and maths.

The chancellor announced a £2.5 billion one-off growth package to help small businesses and invest in key skills. New measures to force Lloyds and RBS to issue £94 billion of new business loans were also announced. A new growth fund of £200 billion for small businesses unveiled for coming financial year. Annual investment tax allowance for small businesses doubled to £100,000 and entrepreneur tax relief threshold increased to £2 million.

Mr Darling also vowed to sell shares in state-owned banks in a way that "gets all taxpayers money back" - but offered no concrete measures.

The feared increase in VAT, from 17.5% to 20%, in line with some of our European cousins, never actually materialised, neither did any hikes in PAYE & National Insurance. (Let’s see what happens after the Election)

The Lows

Duty on cider will rise at 10% above inflation from midnight Sunday in measure designed to tackle binge drinking.

Duty on beer, wine and spirits to rise by 2%, also from Sunday.

Tobacco duty will rise at 1% above inflation from midnight Wednesday.

Conclusion

So, once again, on the face of it, there are way more highs than lows in this budget, but it is a cautious and, some would argue, non committal one. Then again, few of us would expect anything any different, this close to an Election.

On the whole, this budget has been welcomed, as a positive step forwards, but there are many, myself included, who have concerns as to the over optimism of many of Mr Darling’s predictions.

CBI director-general Richard Lambert summed up the general consensus in his statement;

"With the election just weeks away, this was a clever, political Budget. However, anxiety remains on how the deficit is going to be paid down, and the growth forecasts for 2011 and beyond are still on the optimistic side"

HMRC Produces First Ever 'Super Podcast'

This month, HMRC launched it's first ever 'Super Podcast'. In it, HMRC experts, Stephen Banyard and Don Macarthur discuss forthcoming VAT, PAYE and Corporation Tax filing.

You can check out the podcast below:

http://podcasts.hmrc.gov.uk/audio/21-HMRC_Superpodcast.mp3

If you prefer, you can view a transcript of the podcast at the following link.

http://www.hmrc.gov.uk/podcasts/super-podcast.pdf

HMRC Issues The 'Keeping Records' Factsheet

The Keeping Records Factsheet is the first in a series to be published shortly, by HMRC, giving guidance on a variety of useful topics.

If you're starting out in self employment, or just interested to know what the requirements are, it might be worth a look.

http://www.hmrc.gov.uk/record-keeping/index.htm

Download Your Free 'Complete Guide To Tax And Expenses'

The Home Business Network is producing a series of 'Complete Guides' to running a business from home.

There are, currently, two guides in the series, The Complete Guide to Legal Requirements, and The Complete Guide To Tax And Expenses.

The latter has been written by 1st Addition CEO, Alan Young.

You can check out a brief overview of the Tax & Expenses guide, and download both guides from the Home Business Network web site.

http://www.homebusinessnetwork.co.uk/completeguide

Between the two guides, you should be able to answer most questions arising from starting and running a business from home, so why not check them out.

HMRC Warns of New Phishing Scams

In January 2010 HMRC issued new guidance on current phishing scams now in circulation.

This is something that is very much on the increase, with at least a dozen of our own clients having received one or more of these in the last month or so.

The key scams are listed on the HMRC web site as follows:

You have 1 new ALERT message

An email from "HMRC Online services - test@test.com" is being issued, stating the recipient has 1 new ALERT message, and should log into their Online Account to read the message.

The email contains a link to a fraudulent website that requests the disclosure of personal account information and password.

The email is not from HMRC. If you have received a copy please forward it to them at phishing@hmrc.gsi.gov.uk.

Tax rebate

HM Revenue & Customs (HMRC) would not inform customers of a tax rebate via email, or invite them to complete an online form to receive a rebate of tax.

Do not visit the website contained within the email or disclose any personal or payment information.

Email addresses used to distribute the tax rebate emails include:

tax.refunds@hmrc.gov.uk
attached.form@hmrc.attached.gov.uk
service@hmrc.gov.uk
hmrcrefunds@hmrc.gov.uk
refundsdept@ir-efile.gov.uk
noreply@hmrk.co.uk
customers@hmrc.gov.uk
taxcredits@hmrc.co.uk
officer.robinson@hmrc.co.uk
securemail@hmrc.gov.uk

HMRC does not send out emails using these email addresses.

An example of the tax rebate scam:

Example 1 (PDF 22K) (added 21 August 2009)

Example 2(PDF 43K) (added 6 July 2009)

Example 3(PDF 211K) (added 7 January 2009)

Notice of Underreported Income

Emails entitled Notice of Underreported Income are currently being circulated from

no-reply@hmrc.gov.uk
relations@hmrc.gov.uk
commuinication@hmrc.gov.uk

The email links to a fake HMRC website entitled 'Fraud Application' and asks that you download and review a tax statement document. The website then opens an executable file on your machine.

The email is not from HMRC. You should be aware that opening executable files (.exe) over the internet can potentially compromise the security on your machine.

HMRC do not issue emails asking for personal details.

Do not visit the website contained within the email or disclose any personal or payment information.

If you receive an email requesting such information, please forward it to

phishing@hmrc.gsi.gov.uk and then delete it.

National Insurance Contributions email

An email is in circulation entitled National Insurance Contributions, stating that a payment has not been made. The email contains a link to a fraudulent website that requests the disclosure of payment/personal details. The email is not from HMRC.

Update from HM Revenue & Customs' email

HMRC has received reports of emails being sent asking recipients to 'update your account to the new EV SSL certification'. This is a scam email attempting to steal User IDs and passwords.

The email is being sent from info@hmrc.gov.uk.

An example can be seen here (PDF 21K)

You should never disclose personal information such as User IDs or Passwords.

Approval of funds scam email

An email is being issued displaying the email address postmaster@hmrc.co.uk with the subject 'You are a winner of 168,240.00 GBP'.

The email features an attachment and requests that personal details are recorded on the attachment and forwarded to info@lloydstsbprize.com.

Previous phishing scams

The following are phishing attempts that you need to be aware of. Each of these has been reported to HMRC previously.

Anti-Terrorist Certificate - this is a scam involving postal items supposedly being stopped by Customs that require the purchase of an Anti-Terrorist Certificate before being released. There is no such certificate in existence within HMRC.

Child Benefit and Income Support - unsolicited emails are being issued advising the recipient may be entitled to Child Benefit. A non-departmental email address and mobile numbers are being used as the contact points for this scam. An example of the Child Benefit and Income Support scam (PDF 26K).

Compensation - this scam is aimed at people who supposedly have already been the subject of a fraud attempt. The email requests personal details on the pretext that compensation will be paid. An example of the compensation scam (PDF 32K).

Export Clearance Process (Delivery Stop Order) - a number of frauds state that a parcel containing a cheque in respect of lottery winnings, or a legacy left in a will, has been held up by Customs at an airport or dock and requires payment of a percentage of the winnings. This will be a fraud. An example of the Export Clearance Process (Delivery Stop Order) (PDF 92K).

Fake P86 form - letters are being sent with fake P86 Forms, which ask for personal information from taxpayers employed outside the UK. These forms are fake and should not be completed. Further details can be found at Fraud attempt - Fake P86 Form.

Lottery winnings - emails requesting tax payments are required to release funds won on a foreign lottery. This is fraud. An example of the Stop Order fraud (PDF 92K)

Telephone variations - the individual may be contacted by telephone rather than email. HMRC has seen examples where customers are contacted by someone purporting to be from HMRC, claiming that a rebate of tax was due and requesting for payment details to make the payment into. Please note: HMRC would only notify you of eligibility to a tax rebate in writing, not over the phone or email. If you are asked to give any personal details over the telephone you should always check with HMRC that the caller is a genuine representative of the department.

Source: http://www.hmrc.gov.uk/security/examples.htm