Is the tax you have paid correct?

How do you know if your tax is correct?

If you pay your tax under Pay As You Earn (PAYE) your involvement with HMRC will probably be minimal. Your employer makes sure that HMRC are aware of your earnings, operates your tax code, takes tax from you and informs HMRC of your income and the tax taken at the end of the tax year. Generally, the computer systems run smoothly and no further action is needed. However, things do go wrong for a number of reasons, like changing jobs, receiving multiple incomes or taxable benefits, retiring and even bereavement.

It is always wise to calculate the amount of tax you should be paying during the year and to check that it is actually happening. Simple! Not quite, it can be extremely difficult to calculate if you’re not tax trained, especially when some employers and pension providers have stopped sending out regular pay slips, and in some cases P60’s.

So, it can be a shock when you unexpectedly receive a tax calculation (P800) at the end of the tax year stating that you owe tax. You may be aware and be expecting the bill, but if you are unsure of the reason it is time to ask questions of HMRC. The P800 is a computer generated form and therefore it is quite possible that the information contained on it is wrong. For example, the savings income listed might be estimated, a source of income duplicated, or an adjustment for a previous year might be incorrect. It is worth checking:

1. that your allowances are correct. Your personal allowance and, if eligible, the married couple’s or blind person’s allowance
2. all of the figures against your end of year paperwork. P60’s for work and pensions, Certificate 975 for your savings income, not forgetting dividend vouchers
3. for earlier year adjustments (half way down the P800). If an earlier year underpayment is shown, check you agree with it. It is not unusual to see figures here, when the amount has already been paid or a payment plan agreed

If you are concerned, contact HMRC and ask them to explain. If you fail to get a satisfactory answer find someone else to help like a tax adviser/accountant or tax charity.

Even if the figures are correct, and before paying, consider if it was HMRC or your employer/pension provider who caused the underpayment rather than you, especially if you feel you have done everything expected of you. Ask HMRC not to collect the underpayment until they have carried out an investigation to see if either they or the employer/pension provider is at fault.  If the latter, HMRC should pursue them instead of you. If however HMRC decides it is not their fault, it should issue you with a ‘Reg 72 directive’ which allows you the right of appeal to a tax tribunal. If HMRC itself is at fault there is not much you can do for 2014/15 underpayments, unless the same problem occurred in earlier years. If this is the case, ask for “HMRC Error – exceptional circumstances” to be considered.

Be aware though, if at any point HMRC issue you a self assessment notice, to file a tax return, it must be completed within 3 months of issue and the amount owed must be paid. Failure to do so at this point will mean penalties and interest.

This article is by Tax Help for Older People registered charity no 1102276, offering free tax advice to older people on incomes below £20,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066.