HMRC is rife with errors – savers could be owed a refund

Tax Tips: mistakes sadly happen, but it is how they are dealt with that matters

Email your tax questions to Mike at: [email protected].
In a recent article, Telegraph Money reporter Charlotte Gifford wrote about the problems Linda MacBryde experienced in her dealings with HMRC.
The amounts involved may not be large, but her comments bring home the enormous frustration she experienced in her attempts to get HMRC to understand and correct its errors.
I know from the letters and comments we receive that many readers simply give up the fight and pay the tax demanded even when they know the amount being asked for is wrong.
HMRC has now apologised to Mrs MacBryde and corrected its assessments, but it really should not have needed a national newspaper to fight this battle for her.
HMRC likes to call us “customers”. Mistakes sadly happen, but it is how they are dealt with that matters.
Far too often, our readers tell us that they cannot get through to HMRC or, if they do, they cannot find anybody who understands the issues involved. Part of the problem is in the ridiculously complicated legislation dreamed up by successive governments.
Nevertheless, HMRC staff have access to a comprehensive set of instruction manuals, to which I frequently refer, so the information is available for them to help taxpayers.
At the root of this particular case is a failure by HMRC to give Mrs MacBryde the benefit of her savings allowance in the SA302 assessment used – but it is not as simple as that.
In an earlier article, I explained that the savings allowance is not strictly an allowance, but rather a £1,000 nil-rate tax band that applies to savings income that would otherwise be taxable.
Where someone receives savings and dividend income, the way their personal allowance of £12,570 is allocated can make a difference to their tax liability.
If the personal allowance is allocated against savings income, it means that the savings allowance is wasted because there is no savings income remaining to be taxed.
However, this reduces the personal allowance remaining to be allocated against dividend income. When Mrs MacBryde sent me her PA302 assessment, it was clear that this had happened.
However, as a double check, I fed her numbers into a full self-assessment which produced, as I expected, a lower tax liability by an amount equal to her savings income at 8.75pc.
It is important to appreciate that the allocation of personal allowances in an assessment is not a concession that taxpayers have to apply for. It is a fundamental instruction in the legislation to which HMRC must follow.
To be precise, HMRC is required to “deduct the reliefs and allowances in the way which will result in the greatest reduction in the taxpayer’s liability to income tax”. Legislation can hardly be clearer than that.
If additional tax arises in an assessment because HMRC has failed to take this step, then the assessment is unlawful.
The explanation given by HMRC for this failure is that the department was not aware of the amount of her savings income. Mrs MacBryde disputes this and is adamant that she always informed HMRC of her savings and other income.
Whoever is right, it seems extraordinary that this can have happened five years in a row!
An alternative explanation is that the software used in the SA302 assessments was at fault. This is not a new issue. When the SA302 system was first introduced in 2016-17, it was plagued with problems, one of which was the allocation of allowances. That was supposed to have been fixed at the time, but I am now wondering whether the matter was overlooked.
It seems strange that the SA302 assessment failed when the full self-assessment managed to calculate the liability correctly. If HMRC is satisfied that the software works correctly, why is it necessary to make manual checks on 3,500 cases each year?
What I would like to know is how many other readers have been caught out by this and, if so, what success they have had in asking HMRC to correct the errors.
The SA302 letter says that if you disagree with the calculation, you must contact HMRC and explain your reasons within 60 days. If you disagree with the response, you then have 30 days to appeal. However, that need not be the final word on the matter.
Overpayment relief claims can be made up to four years from the end of the year of assessment concerned. This is explained in the HMRC manuals here.
In addition, there is an extra statutory concession that can extend this time limit.
ESC B41 says: “Repayments of tax will be made in respect of claims made outside the statutory time limit where an overpayment of tax has arisen because of an error by the Inland Revenue or another government department, and where there is no dispute or doubt as to the facts.”
If an assessment has been made which is incorrect because allowances have not been allocated in accordance with the law, it must surely fall within the terms of this concession.
I would encourage readers with savings and dividend income who have been assessed by SA302 forms to check whether that have been caught by this and make appropriate overpayment relief claims, quoting ESC B41 where necessary.
An HMRC spokesman said: “We have a process in place to ensure that simple assessments, like Mrs MacBryde’s, give the full benefits of any tax-free allowances and zero rates. Unfortunately, Mrs MacBryde’s case was not picked up by this process. We have apologised to Mrs MacBryde for the issue and have now corrected her tax bills.”
Mike Warburton was previously a tax director with accountants Grant Thornton and is now retired. His columns should not be taken as advice, or as a personal recommendation, but as a starting point for readers to undertake their own further research.