Reading: James Cowper warns on HMRC actions

HMRC appears to be ignoring self-assessment tax returns as it steps up efforts to recover £2 billion in underpaid tax from the past two years, warns Thames Valley accountants and business advisers James Cowper.

Tax demands from HMRC are beginning to land on doorsteps, seemingly irrespective of whether a self-assessment tax return has been made.

Mark Herson, a director in the Private Client team at James Cowper, said: “It appears that HMRC is estimating what individuals owe based on the previous year’s income irrespective of whether a self-assessment return was made.

“HMRC’s PAYE and self-assessment departments are failing to share important information and this is proving quite distressing for a number of our clients, particularly elderly clients whose pension income creates a tax liability.”

Herson references one client who in 2009 had a small tax liability which was paid having completed the relevant self-assessment. No tax liability arose in 2010 and as a result no self assessment was required.

“The client has however received a demand from HMRC that was a pure guess based on what was paid last year,” said Herson. “There was no basis for the demand at all.”

“This approach from HMRC is likely to catch unawares those individuals that manage their own affairs, such as those drawing their pensions, and those honest tax payers who abide by the rules.”

Herson offers this advice to anyone receiving a demand from HMRC: “Anyone receiving a letter from HMRC should not panic. The first step is to review it. You may wish to do this yourself or with help from an accountant. If you agree with the calculations there is nothing further for you to do, apart from pay the demand. This may be done in one lump sum or through a change in the tax code.

“If you do not agree with the calculations you will again need to contact your local tax office, the details of which will be included on the letter. Explain to HMRC why you do not agree with calculations and the demand. It is possible that they will agree with your explanation and no further action will be required. It may be that HMRC will issue you with a self assessment, which you will need to complete and return. This will show that no tax is payable.

“If additional tax is due and it is likely to cause ‘unreasonable hardship’ it is possible to ask HMRC to spread the repayments over a longer period of time. To do this you will need to contact your local tax office.”