Partner Article

Another fine mess from HMRC……..?

It’s come to our attention that HMRC appears to be struggling to keep abreast of new tax legislation.

The issue involves individuals who, before the law changed to cap annual pension contributions, decided to make large catch-up pension contributions in the year to 5 April 2012.

Doing so means they utilise their unused allowances from previous years, and means HMRC revises their code number for 2011/12.

In one case an individual made a pension contribution in the following year (2012/13), duly restricted to the new £50,000 capped amount, and ask HMRC to issue a revised code number. Imagine their surprise when HMRC replied ‘in response to your letter I would advise that the amount we have on record for your pension payments in 2012/13 is £170,000.’

In one case, HMRC had carried forward the coding adjustment for the large 2011/12 pension contribution to 2012/13 and to make matters worse, they’d also carried it forward to 2013/14.

Was this an isolated case? Sadly not. We’re aware of other cases where underpayments of tax have arisen for 2012 /13 as a result of coding adjustments for large catch up pension payments made in 2011/12.

And it doesn’t end there. We’ve also seen coding notices for 2013/14 where no restriction is being made for loan interest relief, which is now capped at the greater of £50,000 or 25% of net earnings – one example includes interest relief of some £320,000.

Taxpayers on the wrong end of these coding errors should ask HMRC to correct the position quickly, otherwise large tax underpayments will build up. Individuals who fail to spot the errors will eventually be charged the correct amount of tax under the Self-Assessment system. At a time when the Treasury is seeking to maximise the tax take, these errors are effectively giving taxpayers the benefit of an interest free loan from HMRC.

So come on HMRC – make sure that your staff are properly trained and updated on changes to tax legislation. Heads are unlikely to roll as a result of these errors, but the embarrassment factor for HMRC is nonetheless significant.

This was posted in Bdaily's Members' News section by Baker Tilly .