PAYE95081 - Reconcile individual: HMRC delay: ESC A19: reasonable belief - factors
The following points confirm some of the factors relevant in making a decision. They are not exclusive and the Authorising Officer should take any other relevant factors into account before arriving at a decision.
The remainder of this subject is presented as follows
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Have HMRC actions caused the case to become muddled or hard to follow? |
The size of the arrears and what caused them
The larger the proportion of the arrears in relation to the overall tax due for the year the less likely it is that the taxpayer could hold the belief that their tax affairs were in order. For example
A Higher Rate taxpayer changes employment but earns roughly the same salary
Their new employer operates PAYE but only operates Basic Rate code (correctly)
HMRC are informed but do not act upon the information
The arrears build up over a number of tax years
The substantial difference between Higher Rate and Basic Rate should lead the taxpayer to question why the net pay has increased for the new employment and why the code has changed. Other factors may be considered but it would not be reasonable for this taxpayer to hold the belief that tax deductions were being correctly made.
However, what might be a substantial sum to the above taxpayer or 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?
The Authorising Officer should consider what information has been given to the taxpayer over the relevant period, for example
- Notices of coding
- Explanatory leaflets
- Letters
- Reminders
- Phone calls
We would expect taxpayers to read and where necessary, act on information we send them. The fact that they might claim not to have understood the information is not, in itself, an excuse that they couldn’t have reasonably have believed their affairs were in order.
The Authorising Officer should also confirm that the taxpayer actually received the information rather than assuming so and will have to weigh up what the taxpayer has, or has not, been told.
Have HMRC given any misleading information to the taxpayer?
One piece of wrong advice may be misleading enough for the taxpayer to hold the belief everything is alright. For example, confirmation that their tax code was correct, and then belatedly discovering that it was not.
In these circumstances, or where the taxpayer has been advised more than once that nothing was wrong, it will be difficult to resist a claim that the reasonable belief test has been satisfied.
Have HMRC actions caused the case to become muddled or hard to follow?
It is not normally enough that a taxpayer’s affairs might be complex anyway but if HMRC actions result in for example
- Numerous codes being issued
- Incorrect codes being issued
- Incorrect information being sent out
the Authorising Officer should consider the taxpayers view at the time that HMRC were correctly sending information.
Professional representation
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 and raise these on the taxpayer’s behalf.
Reasonable belief may change over time
An incorrect code may continue beyond the point where the taxpayer could hold the belief that everything was in order, for example
A taxpayer is provided with a company car and other benefits
The taxpayer’s employer advises that these benefits are taxable and provides the taxpayer with copies of forms P11D
HMRC fail to act on this information
The taxpayer’s code stays the same but the taxpayer thinks nothing of it and considers his code will be changed in time
The situation continues for a number of years with the taxpayer still being informed by the employer that the benefits are taxable
In this case the taxpayer has chosen not to take an interest in his tax affairs and should take some responsibility to question the situation.
The reverse may apply in another situation where the taxpayer receives no information from any sources during the build-up of the arrears and considers that the code in use is correct. Taking into consideration any other factors there could be a belief that nothing was wrong.
The taxpayer’s likely level of understanding of tax
This is a matter of judgement and the Authorising Officer will need to reach a decision taking into account all the surrounding factors. The Authorising Officer should consider
- The taxpayers state of health
- Background
- Age
- How previous deductions of tax may have been made
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.
The Authorising Officer should seek any further information to enable full and proper consideration of reasonable belief before reaching a decision. If the issue is so finely balanced that it is hard to form a judgement, give the taxpayer the benefit of the doubt.
(This text has been withheld because of exemptions in the Freedom of Information Act 2000)
