3. Miss K complains about a tax code error by HMRC which has caused her to have underpaid tax. She explains HMRC clarified the tax rebate it offered her was correct, before admitting to its mistake nine months later.
4. Miss K says this error has caused her anxiety and stress and placed a strain on her relationship.
5. Miss K would like a financial remedy in recognition of the stress this error has caused her and would like the tax she has underpaid to be written off.
6. HMRC received an online P87 job expenses claim for Miss K on 9 January 2023, which it processed on 23 February 2023. It processed the expenses but the tax code it used did not include Miss K’s pay and tax from two previous employments. This led to HMRC refunding tax to Miss K, which was an error. This resulted in an underpayment of £3062.48 for the financial year 2022-23. HMRC reviewed the information it holds about Miss K in September 2023 and issued a Simple Assessment letter to Miss K informing her of the underpayment.
7. Miss K complained to HMRC about this issue, on 3 January 2024. HMRC responded on 26 January 2024, explaining how the underpayment occurred. After Miss K raised a further complaint with it on 30 January 2024, HMRC responded on 5 June apologising for the error it caused and offered to pay Miss K £150 compensation. Miss K wrote to the Adjudicator’s Office on 11 June, and it responded on 29 October. The Adjudicator’s Office decided HMRC should offer Miss K an additional £150, for the delay in issuing its Tier 2 response, and in recognition of the extent of impact the error caused to Miss K. HMRC then wrote to Miss K confirming it would pay the £150 recommended by the Adjudicator’s Office.
HMRC’s nine-month delay in recognising the error
10. Before we decide if we should conduct a detailed investigation of a complaint, we look at whether there are signs the events complained about had a negative effect which the organisation has not put right. Having done so we have found HMRC has already done enough to put right the impact of these events.
11. It has already been established that HMRC caused a nine-month delay between March 2023 when this issue occurred, and December 2023 when it informed Miss K of the tax arrears. Our Principles of Good Administration state, ‘All public bodies must comply with the law and have regard for the rights of those concerned. They should act according to their statutory powers and duties and any other rules governing the service they provide. They should follow their own policy and procedural guidance, whether published or internal’. As HMRC made an error when processing Miss K’s expenses claim, it did not act according to its duties. Therefore, there is an indication of maladministration.
12. When we identify indications of maladministration, we see whether this had an impact on the complainant. Miss K told us that this issue caused her a great deal of anxiety and stress. She explained it has caused strain on her relationship, and she has changed her lifestyle to ensure she can pay HMRC back the money she owes. We were very sorry to hear of the impact this issue has caused to Miss K. We appreciate finding out there had been an underpayment after she had tried to alert HMRC to this fact earlier will have been distressing for her. While we cannot say the HMRC error is the sole reason for the strain on Miss K’s relationship, we recognise the need to repay tax can cause anxiety and stress. For this reason, we feel HMRC’s error has impacted Miss K.
13. To put right HMRC’s error, Miss K has asked for a financial remedy in recognition of the stress caused and would like the underpaid tax to be written off. HMRC has apologised to Miss K for this error and has confirmed to us that it paid £300 to Miss K. This comprises of the £150 it originally paid her, and the additional £150 recommended by the Adjudicator’s Office. This sum can be broken down into a payment of £250 for the emotional distress this issue has caused Miss K, and £50 for a six-month delay in HMRC responding at Tier 1 stage.
14. HMRC’s Complaints and Remedy Guidance sets out the circumstances under which it will consider payments for worry and distress. It states where its actions have affected a customer, causing them worry or distress, in some cases it will make a payment to acknowledge this and apologise. The guidance expects HMRC to consider how long the problem went unresolved but does not provide a financial remedy guidance to set out or suggest specific amounts of compensation. The guidance also sets out that HMRC will provide financial redress for issues arising from unreasonable delays, and the amount will depend on the direct result of the delay, and the period of the unreasonable delay. HMRC must identify what the direct result of the unreasonable delay was. In some cases, although there has been unreasonable delay, there are no financial consequences. The payments will usually range between £25 and £500 and are normally at the lower end of this range.
15. HMRC’s a payment in recognition of Miss K’s distress was £300. This is within the range outlined above. Therefore, it’s action to put right Miss K’s impact is in line with its Complaints and Remedy Guidance.
16. We also reviewed Miss K’s impact against our Severity of Injustice scale (SOI). Our SOI outlines six levels of injustice and what financial recommendation we would make to put this right. We deem the impact to Miss K is within level 2 on our SOI. This is because finding out about the tax underpayment and owing the money back to HMRC would cause distress or worry of the sort which a healthy adult would be expected to deal with on a regular basis, without external support, and which does not impact their ability to function, or to live a normal life. We would reasonably expect any impact to diminish completely in the fullness of time. The financial remedy of £300 already provided by HMRC falls within level 2 on our scale, and we therefore consider it has provided an appropriate remedy to Miss K.
17. We must consider that Miss K has not experienced a monetary loss from the error caused by HMRC. The tax underpayment is the legal tax that she would have owed, and already have paid, had the error not occurred. It is appropriate that HMRC reimburse her for the emotional distress this issue has caused her, particularly because she attempted to alert it to the error several months before it acted. We are pleased to see HMRC has already acted to put this right.
18. Miss K told us in resolution to this complaint, she would like a financial remedy which recognises her distress, and the tax she has underpaid to be written off. We are unable to recommend HMRC writes off the tax underpayment. This is because of ESC A19, set out in HMRC’s PAYE Manual (2016).
19. ESC A19 sets out that tax will normally be given up only if the taxpayer reasonably believed their taxes were in order and HMRC notified them of the arrears more than 12 months after the end of the tax year in which it received the information that more tax was due. It also sets out tax can be written off where the taxpayer was notified of the arrears 12 months or less after the end of the tax if HMRC failed more than once to make proper use of the facts they have been given and allowed the arrears to build up over two whole tax years successively. As these scenarios do not apply to Miss K, we cannot recommend HMRC remove the arrears. We appreciate this is not the outcome Miss K wants, and we hope this explains the reasons why we are unable to recommend this.
20. We have found that HMRC has already done enough to put right the impact of these events on Miss K, and as such we will take no further action.
1. We have carefully considered Miss K’s complaint about HM Revenue and Customs (HMRC). Miss K says she has underpaid tax due to a tax code error HMRC has caused. She explains HMRC delayed in recognising the error and has provided her with contradictory information as to the level of financial remedy it has agreed to pay her to resolve this issue. I was sorry to hear of Miss K’s concerns about the tax code error she experienced and appreciate this has caused her worry and stress.
2. Having reviewed all the evidence available to us, we have decided HMRC has already done enough to put right the impact of these events on Miss K. This is because she legally owes the tax underpayment irrespective of the error, and HMRC has provided her with an appropriate financial remedy for the delay it caused. I have set out my reasoning for this decision below.