PAYE95075 - Reconcile individual: HMRC delay: ESC A19: Examples
Example 1
In CY-3, HMRC receives information that a taxpayer is in receipt of an occupational pension. The pension payer uses the emergency code with full personal allowances. HMRC fails to properly review the information and allows the emergency code to continue. The taxpayer receives duplicate personal allowances as a result. The allowances are already being used against an employment the taxpayer has.
In CY, an officer reviews the taxpayer record and notifies arrears resulting from our failure for CY-3, CY-2 and CY-1, all at the same time.
Subject to reasonable belief, the arrears for CY-2 and CY-3 may be given up because HMRC have failed to make proper and timely use of information.
Although CY-1 arrears have been notified in a timely manner, HMRC failed to update the tax codes at annual coding for CY-2 and CY-1. Because of that the arrears for CY may also be given up subject to reasonable belief. HMRC has failed more than once to make proper use of facts about a source of income and the CY-1 arrears have not built up over two whole tax years (see PAYE95065); the arrears occurred for the same reason as CY-2 and that means exceptional circumstances are met for CY-1.
Example 2
In March 2016, HMRC receives information from DWP about the commencement of state pension.
In May 2016 the taxpayer telephones us and explains that they are now paid state retirement pension from April, along with an occupational pension.
We fail on each occasion to include the state pension figure in the 2016 to 2017 tax code in use by his occupational pension payer. However, in October 2017, we send a P800 underpayment notice for 2016 to 2017.
Despite HMRC failing to make proper use of the information and not notifying the CY-1 arrears less than 12 months after the end of the year in which we first received the information, we notified the arrears in a timely manner, within 12 months of the relevant year. That means we did not fail to make proper and timely use of the information.
The arrears do not fall within exceptional circumstances. Although HMRC failed more than once to make proper use of the facts in our possession, the CY-1 arrears were notified in a timely manner and had not built up over two whole tax years; there are no arrears for the same reason in CY-2.
Example 3
In April 2016 a taxpayer telephones HMRC to say that he has been provided with a company car from the start of tax year 2016 to 2017.
In June 2016 HMRC receives form P46 (Car) from the employer.
We fail on both occasions to include the car benefit in the taxpayer’s 2016 to 2017 tax code.
In July 2017, HMRC receives the 2016 to 2017 P11D and we amend the 2017 to 2018 tax code to include the car benefit at that time and, in October 2017, we notify underpaid tax to the taxpayer for the 2016 to 2017 tax year.
HMRC notified the 2016 to 2017 arrears less than 12 months after the end of the tax year in which the information was received and timely, within 12 months of the relevant year.
That means ESC A19 can only apply if exceptional circumstances are met.
Despite HMRC failing more than once to make proper use of information about one source of income, the 2016 to 2017 arrears have not built up over two whole tax years. There were no arrears for the same reason in CY-2 and that means exceptional circumstances cannot be met. The arrears do not qualify for ESC A19.
Example 4
In July 2015 - HMRC receives a 2014 to 2015 P11D reporting medical benefit.
We do not amend the 2015 to 2016 tax code or issue a P800 notice of underpayment for 2014 to 2015.
In July 2016 - HMRC receives a 2015 to 2016 P11D reporting medical benefit and we correctly amend the 2016 to 2017 tax code to include medical benefit for the first time.
Then, in October 2016 we notify tax arrears for the 2014 to 2015 and 2015 to 2016 tax years.
The taxpayer contacts us and asks us to consider ESC A19 for both years.
Subject to the reasonable belief test, the arrears for 2014 to 2015 and 2015 to 2016 may be given up.
For 2014 to 2015, CY-2, we have notified the arrears more than 12 months after the year we first received information. We have failed to make proper use of information but also failed to make timely use of the information because we did not notify the 2014 to 2015 until more than 12 months after that year. For 2015 to 2016, CY-1 exceptional circumstances are met, HMRC has failed more than once to act on information about the same source of income and the arrears cover two whole tax years and built up over that period from 6 April 2014 to July 2016.
In this example, if the relevant information was first received during 2014, let’s say June 2014, the 2015 to 2016 arrears would not have met exceptional circumstances because the arrears would not have built up over two whole years, 6 April 2014 to 5 April 2016. On information available to HMRC, the 2014 to 2015 tax code was in order prior to June 2014.
Example 5
In CY-4, 2014 to 2015 for this example, a widow inherits her deceased husband’s pension and telephones us to advise her change of circumstances. We already hold details of the pension and we reassure the customer all is in order. However, the new pension is coded with full personal allowances, but the customer already uses her allowance against another pension. As a result, the customer receives duplicate personal allowances for a number of years.
In August 2018, the customer telephones us to ask why she has received a 2017 to 2018 P800 showing an underpayment of tax again. She explains that this has happened for a number of years and now wants the tax to be given up for the years the tax is still outstanding, 2016 to 2017 and 2017 to 2018 under ESC A19.
We examine the record and find that we have sent a P800 showing an arrears of tax annually, within 12 months of the relevant year, since 2014 to 2015.
- 2014 to 2015 – P800 sent August 2015 (CY-1) - underpaid
- 2015 to 2016 – P800 sent July 2016 (CY-1) - underpaid
- 2016 to 2017 – P800 sent July 2017 (CY-1) - underpaid
- 2017 to 2018 – P800 sent August 2018 (CY-1) - underpaid
We have failed to make proper use of information first received in 2014 to 2015 on a number of occasions, including annual coding, by not amending the customer’s code to remove the duplicate personal allowance. However, we have acted in a timely manner by notifying each year’s underpayment CY-1.
Because we have acted in a timely manner, that means ESC A19 will not be met for 2016 to 2017 or 2017 to 2018 unless exceptional circumstances apply.
Although we have failed more than once to make proper use of the facts we had been given about one source of income, we had not allowed the arrears to build up over two whole tax years in succession by failing to make proper and timely use of information we had been given. We have acted timely for each previous underpaid year by notifying the arrears within 12 months of the relevant year. Exceptional circumstances is not met and we do not need to consider reasonable belief.
If we had not sent P800’s annually (CY-1) and tax years 2014 to 15 to 2017 to 2018 were all reconciled and notified for the first time during 2018 to 2019, exceptional circumstances would have been met. ESC A19 would then apply, subject to reasonable belief.