ADML1620 - What this means in practice: Example 2 - income tax, no financial detriment
An individual writes to HMRC to ask about the tax consequences of living in accommodation provided by her employer. Her employer pays a monthly rent of £1,000 for the accommodation. She sends copies of her employment contract and gives full particulars of her employment duties and of the living accommodation. HMRC confirms in writing that there is no living accommodation benefit charge because her circumstances satisfy the conditions of a statutory exemption and she completes her personal return on that basis. A few months later, an HMRC officer examines all employee benefits provided by her employer as part of an employer compliance review. The officer establishes that the original advice was incorrect and that there is a taxable living accommodation benefit equal to the rent paid by the employer. The employee’s return is subjected to an enquiry and the effect of the incorrect decision is that she has to pay additional income tax of £2,400 for the year (20% of the benefit of 12,000).
In this example, the customer seeks clear guidance, receives an unambiguous response, and acts on the incorrect advice by completing her return and self-assessing her income tax liability in accordance with that advice. However, she would suffer no financial detriment if required to pay the tax, as she would be in the same position as she would have been if the correct advice had been given in the first place. The tax is therefore not remitted. The true tax position is confirmed to the customer in writing so that she can enter the correct figure of taxable living accommodation benefit in her future returns.