Property investors and the HMRC PAYE tax code bungle

Property investors and the HMRC PAYE tax code bungle

14:47 PM, 27th October 2010, About 14 years ago

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Millions of landlords and property investors are tied up in the HM Revenue and Customs PAYE code bungle and may have to pay back tax wrongly calculated over previous years.

Any property investor who has tax collected under the PAYE scheme or receives a notice of coding for pension payments could be drawn in to the net.

The computer errors are specific to income tax and do not affect capital gains tax.

HMRC reckons about 6 million or so taxpayers are victims of the computer problems – which is about one in seven UK PAYE taxpayers.

About 4.5 million taxpayers are owed money wrongly deducted from their salaries.

Property investors or the self-employed are not specifically involved – unless they have full or part time jobs with an employer or receive pension payments.

The media is full of ‘experts’ suggesting a tax loophole means many could avoid paying clawed back tax – about 1.4 million people owing an average £1,400 each are affected here.

This is not necessarily true and making a claim is time-consuming and stressful.

The loophole is in fact a long-standing ‘extra statutory concession’ or ESC.

An ESC is simply a working practise agreed by HMRC that is not backed up in law.

That’s the first problem – because an ESC is not law, it’s discretionary and not a right.

In this case ESC A19 applies, which says: “If you think that HMRC should have already collected tax due because the information had already been provided, and HMRC have failed or delayed to use this information, then in some limited circumstances HMRC may agree not to collect the tax.”

To make a successful claim under ESC 19A, a taxpayer has to write to their tax office proving:

  • Relevant information about your tax affairs was sent to the tax man, like having a company car as a job perk, a change of job, retirement or private pension payments
  • The information was filed by an employer, agent or other party
  • HMRC have failed to use the information within 12 months after the end of the tax year in which the information was provided.
  • ESC19A would apply to information given on or before April 5, 2009 that was not used by April 6, 2010.

    ESC 19A does not apply to any information filed on or after April 6, 2009 used before April 5, 2011.

    ESC 19A also applies if HMRC ask for one tax year’s unpaid tax and then ask for more money for the previous or following year because information about your finances was given but HMRC failed to act on the details.

    HMRC then decides whether you had good reason to believe your tax affairs were in order.

    If making a claim, expect a war of attrition from the taxman, who will stall and ask for documents to back up your claim.

    If the claim is denied, you can appeal, but at this stage you need to consider whether the cost of proceeding outweighs the time, hassle and expense of a professional adviser.

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