Tax by definition
Image Source: Alan Cleaver
Baker Tilly

Member Article

Tax really CAN be taxing!

How easy is it to trip up in tax? A recent case shows that even the simple things can be confusing to the taxpayer, and he pays the penalty.

You fill in your tax return, which is not complicated – wages and a small amount of rental income. You file it online, before the deadline, and HMRC’s computer acknowledges processing. You owe tax, but it’s less than £3,000, so you tick the box to tell HMRC you want the tax collected via your PAYE code. Job done for another year, you’d think.

But no, there’s still plenty of room for error, even in something so straightforward, as an unsuspecting taxpayer called Derek Ross recently discovered. He owed £807.40, elected for HMRC to collect it through payroll by adjusting his tax code, then forgot about it until the £40 penalty notice arrived. He had failed to read the small print, and he didn’t check his online tax account.

Filing on time and owing less than the £3,000 limit for coding out arrears are not enough to ensure that you can pay via PAYE. HMRC will not code out a sum that would double the normal PAYE due for the year – despite the taxpayer’s request – and it cannot create deductions via a ‘K-code’ that would be more than 50% of income.

In this case, the normal annual PAYE due was less than £800, so HMRC disregarded the election made in the tax return. It didn’t tell the taxpayer about this, but it is the taxpayer’s responsibility to check and pay, without a prompt or reminder from HMRC. So he didn’t pay on time and duly received a penalty, which a tribunal has now upheld.

Despite the fact that, under PAYE, he could have paid the tax spread over twelve months, he was penalised for not paying it until after his appeal letter had been dealt with. It seems unfair, but the first-tier tax tribunal can’t do ‘fair’, it can only apply the law.

The moral of this tale? Check carefully everything HMRC that sends you and assume nothing. Tax is indeed taxing, and there’s no excuse for not knowing HMRC’s published rules.

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

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