13. Before we decide if we should consider a complaint further, we look at whether there are signs the organisation has got something wrong. We do this by comparing what should have happened with what did happen. We have done this and have not found any indications that something has gone wrong when HMRC decided not to give up Mrs O’s tax underpayment.
14. HMRC has acknowledged that it is at fault for the underpayments in both 2020/21 and 2021/22. As both it and Mrs O’s employer have explained, this happened because HMRC has assigned a personal allowance – the amount a person can earn before tax becomes due – to both of her jobs. Usually, the allowance would be allocated to one job with tax being due on all earnings from the second job. This would mean one job having a tax code which shows the allowance, with the other having a Basic Rate (BR) code. In this case, however, both jobs were issued codes reflecting an allowance.
15. From the information Mrs O has provided it seems that her employer had identified the duplication in the tax codes and had amended the code for the second role to BR. Despite this, HMRC changed the code back. We acknowledge how frustrated Mrs O feels in view of this.
16. Tax codes are used with the aim of collecting the right amount of tax in real time. When this does not happen, it does not necessarily mean the tax due will not be collected. HMRC is entitled to collect the correct amount of tax due, even if this is after the time it should have been collected. This applies even when the employer or HMRC is at fault.
17. Both HMRC and the AO have considered whether ‘ESC A19’ applies to Mrs O’s case. ESC A19, or Extra Statutory Concession A19, is part of HMRC’s PAYE (Pay As You Earn –tax matters that apply to employed people) Manual. It provides HMRC with limited discretion to determine whether it should give up collection of tax in instances where an unexpected tax bill has arisen.
18. ESC A19 includes provision for a tax underpayment arising from a HMRC error. It explains that outstanding tax might be given up if this results from its failure ‘to make proper and timely use of information supplied by a taxpayer about his or her own income, gains or personal circumstances, or an employer if the information affects a taxpayer’s coding’.
19. There is no dispute that Mrs O’s case meets this part of the criteria.
20. ESC A19 goes on to set out that ‘tax will normally be given up only if the taxpayer could reasonably have believed that his or her tax affairs were in order and was notified of the arrears more than 12 months after the end of the tax year in which HMRC received the information indicating that more tax was due’.
21. Mrs O argues that she meets the first of these two requirements as she believed her tax affairs were in order. Although this may well have been the case, ESC A19 is clear that all three criteria have to be met. Unfortunately for Mrs O, the final criterion is not met.
22. HMRC knew Mrs O had underpaid tax for the 2020/21 tax year in April 2021. This was when that tax year ended. It told Mrs O about the underpayment in October – six months later.
23. Similarly for the 2021/22 tax year, HMRC wrote to Mrs O about the underpayment in July 2022 – three months after the end of that tax year. Neither of these underpayments were brought to Mrs O’s attention more than 12 months after the end of the tax year in which HMRC knew more tax was due.
24. Mrs O has correctly noted that ESC A19 allows HMRC to set aside tax where the underpayment was made known within 12 months ‘in exceptional circumstances’. These circumstances are where HMRC ‘has failed more than once to make proper use of the facts [it] had been given about one source of income, allowed the arrears to build up over two whole tax years in succession by failing to make proper and timely use of information [it] had been given and it was reasonable for the taxpayer to believe that their tax affairs were in order’.
25. We acknowledge Mrs O’s argument here. She has underpaid during two tax years as a result of the same HMRC problem her employer has notified it about. We can see how she has concluded that ESC A19 should apply. Having considered this carefully, this is unfortunately not the case.
26. If HMRC had not told Mrs O about the 2020/21 underpayment in October 2021 and instead alerted her to both years’ payments in July 2022, the criteria may have applied. However, as it did do this, it has not permitted the arrears to accrue over two years before bringing this to her attention. Mrs O may find Example 5 within the guidance here helpful in illustrating this in more detail.
27. We recognise how upsetting it must have been for Mrs O to receive tax bills for which she considers she bears no responsibility. Nonetheless, HMRC is entitled to collect the correct amount of tax due. Therefore, whilst we accept it may seem unfair to Mrs O, we consider that HMRC and the AO correctly concluded that HMRC is entitled to claim back the underpayments from her.
28. We have also considered the level of payment HMRC made to Mrs O. It paid her £200, which Mrs O believes is not enough to reflect the impact this issue has had on her. She feels £950 would be more appropriate.
29. HMRC’s Complaints and Remedy Guidance explains that if its actions cause a customer to worry or distress, it may consider making a payment to acknowledge and apologise for this. It notes that such payments will usually be between £25 and £500, with most being towards the lower end. The £200 Mrs O has received falls into this range.
30. HMRC initially paid £150 because it accepted it had made a mistake in not using the information Mrs O’s employer gave it. This was to acknowledge the worry and upset the resulting underpayment caused her. The AO later increased this by £50 to recognise the frustration caused by HMRC not properly explaining why the underpayment could not be set aside. We understand Mrs O is unhappy with this but are mindful that this alone does not mean HMRC and the AO got the sums wrong. As the £200 has been paid in accordance with HMRC’s Guidance, we do not think there is any failing here for us to consider further.