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Tax is taxing

03 February 2015 / David Brodie
Issue: 4487 / Categories: Comment & Analysis

How charities help people to tackle self assessment difficulties

“Tax does not have to be taxing.” Over the past ten years, a string of celebrities has assured the British public of this maxim.

But try telling that to Teresa or Martha who consulted TaxAid for advice recently.

Punitive penalties

Teresa was a newly self-employed therapist who had to complete her first tax return which was for 2012/13 by 12 August 2014. She did so almost perfectly.

She correctly reported her income, which was well below the tax threshold, and attached two pages of handwritten information to ensure that her affairs were fully understood. She posted the return the day before the deadline, and thought she had done rather well.

But two weeks later it was returned by HMRC with a letter saying the form was incomplete and unacceptable: she had failed to enter the date of her accounting year end (box 7 on page SES1).

They added that she had now missed the filing deadline and, as a result, would be charged a penalty, signposting her to online information. This gives plenty of detail about how penalties are triggered and calculated but none about “reasonable excuse”.

Teresa was distraught because she had no spare cash to pay a £100 penalty. The Citizens Advice Bureau referred her to TaxAid which helped her to complete the return by entering “05 04 2013” in box 7.

We explained that she could challenge the penalty on the ground of reasonable excuse and helped to draft her appeal. This pointed out that the handwritten information had clearly implied that her accounting period was coterminous with the tax year and so HMRC need not have rejected the return.

Furthermore, after the return was sent back, Teresa had immediately sought specialist help from a tax charity and it was refiled within a month. HMRC agreed to cancel the late filing penalty.

Note that the Office of Tax Simplification’s report on tax penalties, published in November, rightly observes that the higher late filing penalties introduced in 2011 and the end of the old cap on penalties to the amount of tax due has a “disproportionate impact on the elderly and the more vulnerable members of society”.

It reports that calls to Tax Help for Older People for advice on late filing penalties increased from about 100 to 650 a week when the new regime was introduced.

Right amount of tax

“We want you to pay the right amount of tax: no more, no less”, states the code of practice on self-assessment enquiries. So, as well as ferreting out tax underpayments, compliance officers should also correct errors made in HMRC’s favour.

Martha, a retired nurse with straightforward financial affairs, was being pursued by HMRC for more than £50,000. The case started simply enough. When she was employed in the NHS, she had done some agency work and had been given the wrong allowances under PAYE; this led to the issue of tax returns.

Martha finds even simple forms difficult, and copies of her tax returns and HMRC calculations showed that more than £40,000 of the debt related to the 2012/13 tax return which contained some enormous errors.

Against “UK life insurance policy etc gains on which tax was treated as paid – the amount of the gain”, Martha had entered £70,000. When we asked her why, she told us she had her mortgage endowment policy valued in the year, and this was the figure she had been given.

On “Value of pension benefits in excess of your available lifetime allowance, taken by you as a lump sum”, she had reported £54,000. It transpired this was a valuation of her pension fund she had received during the year.

HMRC had selected the tax return for enquiry. Strangely, they had not even noticed these suspect entries at all; rather they noted that she had not included a small annuity of £750, and they wanted to collect additional tax on this.

We spoke to the compliance officer who quickly agreed to remove the two large figures. After the errors on the 2012/13 return were corrected, the debt for that year was reduced to £8.

Teresa and Martha are two of the many people helped by the tax advice charities TaxAid and Tax Help for Older People. The organisations have come together in the Bridge the Gap campaign to raise awareness of the work they do in providing the profession’s safety net for vulnerable people on low incomes.

Issue: 4487 / Categories: Comment & Analysis
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