PAYE95080 - Taxpayer end of year: HMRC delay: ESC A19: reasonable belief


For tax to be given up the ‘reasonable belief’ test must be satisfied. The important point to remember is not whether the taxpayer ‘believed’ their tax affairs were in order, but whether you think it was reasonable for them to believe they were.

You will see cases where the taxpayer might genuinely believe that he does not owe any further tax, but it was not reasonable to hold that belief, given all the circumstances. This is a matter of judgement and you will need to reach a decision taking into account all the surrounding factors. For example, the taxpayer's likely level of understanding of tax matters, their state of health and their age. Claims by the taxpayer that they were too busy or otherwise preoccupied to pay full attention to their tax affairs are not to be taken account of.

Your aim is to reach a common-sense decision using all the known facts. There will not always be an obvious answer, but more often than not it will be clear that the test is not satisfied. For example, a large car benefit not coded out or an obviously unjustified repayment.

If the issue is less clear-cut you will need to consider a range of factors, including


  • The nature and size of the arrears and what caused them.

The larger the sum the less likely it is that the reasonable belief test will be satisfied, but you will need to take into account the taxpayer's circumstances. What might be a substantial sum to the average taxpayer may be less so to a wealthy individual with several sources of income and gains.


  • What information had been given to the taxpayer over the relevant period,for example notices of coding, explanatory leaflets such as P3, letters,phone calls and so on?

You will have to weigh up what the taxpayer has, or has not, been told and decide whether it was reasonable for them to believe their tax affairs were in order.


  • Have HMRC given any misleading information to the taxpayer?

For example, confirming repeatedly that their code was correct, and then belatedly discovering that it was not. In these circumstances, it will be difficult to resist a claim that the reasonable belief test has been satisfied.


  • Had HMRC actions caused the case to become especially muddled or hardto follow?

It is not normally enough that a taxpayer's affairs might be complex anyway.

If the taxpayer has been professionally represented then it will be harder to claim that the reasonable belief test is satisfied, because HMRC would expect an agent to spot failures or errors more readily.

Reasonable belief may change over time. For example, an incorrect code may continue beyond the point where it is reasonable for the taxpayer to believe their affairs are in order. The reverse may apply if, during the build-up of the arrears, an event took place that caused the taxpayer's reasonable belief to change, such as a letter from the tax office telling him that his affairs are in order.

In any case where you consider there has been a change over time in what it was reasonable for the taxpayer to believe, or if he makes such a claim, contact PSN PAYE Technical, Shipley before agreeing to any time apportionment.

You may have to seek further information to enable full and proper consideration of reasonable belief before you reach your decision. If the issue is so finely balanced that you find it hard to form a judgement, give the taxpayer the benefit of the doubt. PSN PAYE Technical, Shipley will advise in any case of difficulty.