Reasonable mistake?
HMRC have for years accepted that they shouldn’t collect tax if the taxpayer reasonably believed that everything was in order, and the department had failed to make prompt and proper use of information provided or had failed to ask for information when it should have done. In two recent cases they have refused to apply this concession.
In the first, the taxpayer was elderly and disabled, and didn’t use a tax agent. He changed jobs and received a wrong PAYE coding notice. As he had paid tax under PAYE for years, he thought the right amount would be collected. The trouble was that HMRC seem to have noticed their mistake: they sent him a tax return to fill in after the year in question, and he had no excuse for not filling it in and putting the record straight.
In the second, the taxpayer took early retirement. He had three sources of income, but he received a total of 14 notices of coding in a two-month period. These notices confused him and didn’t collect the right amount of tax. HMRC asked for an underpayment of £800 within 8 months of the end of the tax year, and refused to apply the concession. The Tribunal hasn’t finally decided that one yet, but it seems likely that HMRC acted quickly enough to correct the mistake.
In another case, the taxpayer had to pay the tax, but the Tribunal accepted that he shouldn’t have to pay a penalty on top because he reasonably believed that his liability had been settled under PAYE. The employer had made the mistake and he shouldn’t be blamed.
HMRC don’t like giving up tax that’s legally due. But if you think you have given them all the right information at the right time and they haven’t done anything with it, you may be entitled to assume that everything’s settled. If this affects you, we can discuss the likely outcome.