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I've Got an HMRC Tax Demand: What Do I Do?

By: J.A.J Aaronson - Updated: 21 Nov 2012 | comments*Discuss
Tax Demand Hmrc Underpaid Overpaid Paye

Thousands of taxpayers have had unpleasant letters landing on their doorsteps in recent months. As a result of mistakes made at HM Revenue and Customs (HMRC), many people have received demands for underpaid tax – demands that sometimes run to thousands of pounds.

Receiving a demand of this sort is obviously a shock. But it is important that you don’t panic. In some situations, you may not have to pay it.

Why am I Getting a Tax Demand?

Thousands of people have received tax demands from HM Revenue and Customs following mishaps in Tax Offices across the country.

In a series of Benny Hill-esque mishaps, thousands of taxpayers had their Tax Code miscalculated – meaning that they have ended up paying too little tax. HMRC is now in the process of writing to those taxpayers, demanding that they pay back the tax that they didn’t realise they owed in the first place. Confusing, yes?

This Doesn’t Seem Fair...

No, it isn’t. Many taxpayers are receiving demands for thousands of pounds, and many simply cannot pay it. You are receiving a financial shock because of HMRC’s incompetence.

HMRC made the problem worse, after their head apparently refused to apologise for the mistake. Although they have since changed their stance, they still maintain that the country is not in a financial position to simply forget about the unpaid tax.

Can I Get it Written Off?

If you receive a tax demand from HMRC, do not panic. In some circumstances, you may be able to have the demand written off.

Broadly speaking, HMRC is legally obliged to issue a demand within 12 months of the end of the tax year in which it realised that you had underpaid your tax. The only exception to this is cases in which HMRC had not been provided with the information they needed to properly calculate your tax code.

If you are confident that HMRC had all the information they needed, you can apply for an ‘extra statutory concession’. You can do this by calling HMRC and asking for an ESC A19. It is also worth noting extra statutory concessions apply to those with Capital Gains Tax demands, as well as those with income tax demands.

What if I Have to Pay it?

If HMRC acted sufficiently promptly in issuing a demand, you will probably have to pay it. The way in which you pay will depend on the amount you owe, and your employment situation.

If you owe less than £2,000, HMRC will try to alter your tax code in order for it to be deducted from your income through PAYE. If you owe more than £2,000, you will need to negotiate a payment plan with HMRC. They will normally expect the sum to be paid in several instalments, over several years. They will take a range of factors into account when deciding on how long you will have to pay.

As with all tax matters, it is important that you act promptly if you receive a tax demand. It will not just go away. The longer you leave it, the worse it will get. If you are in any doubt, or if you simply cannot pay the demand, seek advice from your local Citizens Advice Bureau.

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On one months notice, I have just had to shell out £481 for 2110 tax because HMRC made a coding error which deleted PAYE recovery, and which they state was discovered too late to restore. To add insult to injury I am now required to pay £2728 on three months notice for 2012 and an advance payment of £1364 for 2113 tax plus another £1364, six months later. I have 7 pension sources. One provides about 48% of my income, with 52% from the remaining six. HMRC say that there is not enough income from my 48% provider to collect the 2012 tax due of £2728 as to do so would result in over half my income being deducted from my pension and they cannot deduct from the remaining 52%. My gross income from the 48% source is £22k, so I don't understand what they are on about. Even if they are correct, I don't understand why further deduction is not possible from the remaining 52%. Up until now and certainly for the past ten years,PAYE has applied to the whole of my pension income. The end result of all this is that in addition to the £481 paid to HMRC in the last month, I have to find another £5456 in the next eight and a half months but most of it by the end of January coming. Are they correct and, if not, what can I do about it? Thanks and regards Michael van Brugen
Mr Magoo - 21-Nov-12 @ 4:08 PM
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