Each year HMRC carries out a reconciliation of PAYE collected from each employee with the tax due from him/her. A P800 tax calculation is sent out to the taxpayer if there is an over/under payment of tax. If the underpayment is below £50 (which was temporarily raised to £300) no more tax is collected. Should it be £50 or above but below £3,000 the underpayment is collected through next year’s PAYE by adjusting the tax code. Underpayment of £3,000 or above will be collected directly from the taxpayer.
In certain cases Extra Statutory Concession ESC A19 allows HMRC to write of underpayment above £50.
ESC A19
This concession allows writing off arrears of income tax or capital gains tax where the arrears have resulted from HMRC’s failure to make proper and timely use of information provided by:
(a) the taxpayer about his or her own income, gains or personal circumstances;
(b) an employer, where the information affects a taxpayer’s coding; or
(c) the DWP about a taxpayer’s retirement, disability or widow’s State pension.
Examples of ‘information include details of a change in income, or a taxable benefit provided by the employer, for example a company car; a new job or additional job or start of a work or private pension.
The concession applies where the taxpayer could reasonably have believed that his or her tax affairs were in order, and either (i) was notified of the arrears more than twelve months after the end of the tax year in which HMRC received the information indicating that more tax was due; or (ii) was notified of an over-repayment after the end of the tax year following the year in which the repayment was made.
The time limit is important for ESC A19 to apply. HMRC should have failed to use ‘information’ to notify the taxpayer within 12 months after the end of the tax year in which the information is received. So if HMRC receives the information on 31 December 2010 HMRC should have either issued a tax code or sent out a tax calculation based on the above information before 5 April 2012, which is 12 months after the last day of the tax year 2010-11. Failure to do so could invoke ESC A19.
