7. Mr A complains that HMRC:
• failed to act on information provided to it and gave him incorrect information • issued incorrect tax codes to his employer and said no employer error existed 8. Mr A tells us that the events have caused and continue to cause him stress and anxiety and that he experiences panic attacks on occasion.
9. Mr A would like HMRC to recognise its errors, apologise for them and for it to write-off the tax owed for the period
10. For the tax year 2015/16, Mr A submitted a claim to HMRC for expenses incurred in his employment (he used a company credit card to make business related purchases) and submitted a self-assessment (SA) tax return alongside the claim. The amount claimed was £9,809.
11. The amount of the claim was automatically carried forward by HMRC into the following tax year (2016/17) and Mr A was sent a coding notice in February 2017 showing this was the case. Mr A contacted HMRC in September 2017 which resulted in HMRC amending the expenses claim for 2015/16 to £8,804 and the figure for 2016/17 to £8,500.
12. In March 2018, Mr A called HMRC again and because of that call HMRC removed the £8,500 claim from his 2016/17 tax code. However, the HMRC PAYE system had automatically carried forward the £8,500 into his 2018/19 tax code and it continued to do so for the 2019/20 and 2020/21 tax codes.
13. In March 2020, Mr A called HMRC and told it he did not have any expenses that needed to be included in his tax code. HMRC sent him amended tax code notices for 2018/19, 2019/20 and 2020/21, having removed the expenses from them.
14. In November 2020 both Mr A and his employer payroll representative spoke with HMRC about the issue of the expenses. They were told that because of the expenses being included there would be an underpayment of tax by Mr A of £1,757.70.
15. Several tax code amendment notices were sent out during the 2020/21 period to both Mr A and his employer. However, for reasons we will explore later, his tax code was not updated and so he continued to underpay tax.
16. Mr A’s representative spoke with HMRC in December 2021 and began the formal complaint process. A Tier 1 response was sent by HMRC later that month, explaining it had looked at each tax year and concluded that it had not made any errors, and the tax needed to be paid.
17. A Tier 2 response issued at the end of March 2022 with a further response in November 2022 after additional investigation by HMRC.
18. He wrote to the Adjudicator’s Office (AO) in May 2023 however it appears the letter did not reach the AO, and it was not until February 2024 that the AO confirmed receipt when the letter was resent. The AO completed its investigation in April 2024 and did not uphold the complaint.
19. Mr A then brought his complaint to our Office.
Failed to act on information and gave him incorrect informaiton
23. Mr A told us that he only claimed expenses in the tax year 2015/16 but HMRC continued to issue tax notices on the basis he carried on claiming expenses through 2016/17, 2018/19 and 2019/20. He also told us that, according to HMRC rules, he should have been filing Self-Assessment (SA) Income Tax Returns (ITR) to be able to claim those expenses, and he did not file any after 2015/16.
24. He told us that despite him telling HMRC that he was not claiming any expenses, it failed to act on this information, and this resulted in him underpaying tax.
25. We asked HMRC to explain how Mr A’s tax code showed expenses in the years 2016/17, 2018/19 and 2019/20 when he told us he never claimed them.
26. HMRC said that it was acting in line with specific PAYE guidance when it carried forward expenses into subsequent tax years. It referred us to PAYE12025 and PAYE 12045.
‘PAYE12025 outlines how HMRC systems automatically carry forward benefits and expenses data (including from forms like P11D) into future tax years ((Current Year (CY) and CY+1)) unless there is a reason not to. If the taxpayer did not notify HMRC to remove or amend the expenses claim, HMRC systems may automatically carry forward the previous year’s claim into the next year’s tax code. This is standard practice unless the taxpayer or their representative explicitly requests a change.
PAYE 12045 explains how expenses are coded into PAYE tax codes and includes the following key points:
• If an employee has claimed allowable expenses (e.g. via form P87 or a letter), HMRC may include these in the tax code for the current and future years.
• Unless the taxpayer or their agent requests otherwise, HMRC may continue to include the same expenses in future years’ tax codes.
• This is done to ensure continuity and to avoid under- or over-collection of tax.’
27. We asked HMRC to explain how it continued to process the expenses claims when Mr A had not filed any SA ITR’s. It told us that although Mr A did not complete any SA ITR’s after 2015/16, it sent notices to him to file them as he had expenses of over £2,500 in his code. (We will look at the reason for that later in this document). When it did not receive any returns from him, it then followed its guidance (SALF209) and used the information it held.
28. It provided details for the four tax years we are looking at:
• ‘2016/17 Notice to File was issued early April 2017 but not completed. We sent a Late Filing Penalty of £100 to Mr A which was cancelled from his telephone call of early March 2018’.
• ‘2017/18 Notice to File was ready to be issued but cancelled after Mr A’s telephone call of early March 2018’.
29. HMRC told us it ‘removed the expenses and benefits in early March 2018 from Mr A’s 2017/18 tax code after he phoned it, but it made an error and failed to remove the expenses from his 2018/19 tax code which had already been updated by the annual coding’. So, while it is in line with guidance to carry over the tax code, HMRC failed to act on information provided.
30. This meant that HMRC was then not able to act in line with the Charter which says, ‘We’ll give you accurate, consistent and clear information.’
31. This is an indication of maladministration, and we will return to this later in the document.
• ‘2018/19 Notice to File was issued early April 2019 as his SA record was reactivated because we identified SA criteria (large Expenses). We sent a Late Filing Penalty of £100 which was cancelled from his telephone call of early March 2020’.
• ‘2019/20 Notice to File was ready to be issued early April 2020 but cancelled after the telephone call of early March 2020’.
32. HMRC explained that it removed the expenses from Mr A’s 2020/21 tax code after that call of early March 2020, and an amended code was sent to him and his employer that day. In that call, Mr A was told that either he or his employer must have claimed the expenses as HMRC would not just have ‘added them on.’ This is not accurate in the context of the post 2015/16 tax years where the HMRC automatically carried forward expenses. It is not in line with the Charter which says, ‘We’ll give you accurate, consistent and clear information’ and is an indication of maladministration.
33. We will look at the impact of this later in this document.
Employer tax codes and error
34. Mr A told us that his employer failed to use accurate tax codes and that HMRC must have known that was the case. He also told us that HMRC knew the Company did not get the new coding notices and did not take any action.
35. For the tax year 2020/21, Mr A’s tax code was amended six times by HMRC. When a tax code is amended, HMRC sends a coding notice to both the taxpayer and the employer of that person. We will refer to Mr A’s employer as the Company.
36. HMRC told us that several of the coding notices sent to the Company in that period were returned by the Postal Service. Mr A raises the point that if only several were returned then, on the balance of probability there is a good chance that means the Company received at least one coding notice. While we understand his view on this, we cannot say with any certainty that the ones that failed to be returned were not simply destroyed by the Postal Service or some other party at the address on the letters.
37. We asked HMRC what should happen, if anything, when a coding notice sent to a company is returned undelivered.
38. HMRC provided us with details from its internal guidance that explained that when a notice was returned undelivered the system would check to see if there was an alternative address on file for the company. It explained that in Mr A’s case, the March 2020 P9 tax code notice (a letter sent prior to the start of each tax year) issued to the Company was sent to the Agent for the Company and was returned as undelivered. The correspondence address then reverted to the Company address held on file.
39. It also said that it cannot reissue anything until it has a verified address, as there would be a risk of it breaching the General Data Protection Regulations (GDPR) if it sent customer information to the incorrect address. The Company address had not been the address being used for HMRC coding notices (these went through the Company Agent) and as such it was not considered a verified address for anything other than basic correspondence.
40. HMRC told us that the emphasis is on the organisation to tell HMRC if there are changes to a business address. The webpage ‘Tell HMRC about a change to your business’ says:
• You must tell HM Revenue and Customs (HMRC) if you change your name, business name or your personal or trading address.
• Tell HMRC about changes to your business, including your correspondence address and payroll details if you’re an employer.
41. HMRC explained it had an internal process to follow when mail was returned and provided us with details of that process. There are no options in that process that led to a reissuing of the coding notices and so HMRC could not take any steps to inform the Company it was likely not using the correct codes.
42. As we have seen, this failure to receive the coding notices meant that the Company was using an inaccurate tax code for Mr A however it was using the last known tax code. We will look at this shortly when we consider employer error.
43. In addition, we should note, the HMRC website ‘Tax codes: if you think your tax code is wrong’ says:
‘If your payslip does not show your new tax code, speak to your employer to check they’ve got it.’
44. We appreciate that Mr A would have expected his employer to have the same information he did about the changes to his tax code. We note that he also had information in his payslip that would have confirmed it did not.Mr A told us that his employer must have knowingly used the incorrect tax codes. While we understand Mr A’s frustration this is not a matter that we can take a view on as this implies intent on the part of the Company and that would not be within our remit to consider.
45. We will consider whether it is reasonable to believe the Company had enough information stemming from the call in November 2020 that it might then meet the criteria for Employer Error.
46. Mr A explained that in a call he made to HMRC in November 2020 to discuss the expenses issue, the Company Accountant (the CA) was also involved in that call. The limited call notes (the recording is no longer available) show that there was a discussion between the CA and the call handler, but the focus appears to be on correcting the errors of the unclaimed expenses for tax years 2018/19 and 2019/20 rather than any discussion about the 2020/21 current tax code.
47. We have also seen in the March 2022 complaint response that HMRC say, about the November 2020 call, that ‘this was explained (that an £8,500 expenses claim had previously been removed in March 2020 and that there was likely going to be an underpayment) to Mr A and the Company payroll representative and both were advised where the underpayment of £1,757.70 had originated’.
48. The HMRC guidance ‘Employer errors in deduction of Pay As You Earn tax’ says:
‘The vast majority of employers and pension payers calculate Pay As You Earn (PAYE) deductions accurately and correctly pay the tax to HM Revenue & Customs (HMRC). However mistakes can be made.
If you think that your employer or pension payer has made a mistake in the deduction of PAYE tax which has resulted in the issue of a Tax Calculation (P800) to you, then in some limited circumstances you may not have to pay the underpayment caused by that error’.
49. In that guidance, HMRC list examples of what counts as an error. The ones pertinent to this complaint are:
• using a tax code without HMRC authority • failure to use the same tax code for a new tax year, where no new code has been issued • failing to operate tax codes sent electronically by continuing with out of date tax codes
50. In Mr A’s case, none of the above apply as HMRC had given authority for the Company to use the tax code it was using, and it continued to use that code for the new tax year as it was not aware new codes had been issued. A new tax code was not issued electronically, so it did not use the out-of-date tax code in error. We also cannot say with any certainty, based on the November 2020 call, that the CA (and by definition the Employer) was aware the incorrect code was being used for that tax year.
51. Mr A explained that the AO had said ‘it is the Employer’s responsibility to make sure its details are up to date to receive notices of coding’ and that this should be considered an Employer Error. This is a separate issue and does not fall within the scope of Employer Error as HMRC consider it.
52. We can see from the evidence that HMRC followed its guidance with respect to returned mail and so despite there being evidence that the Company was likely using the incorrect tax codes there was no action HMRC should have taken.
53. We have seen that the Company did not commit any of the errors that would have left it open for HMRC to conclude that Mr A did not have to pay the underpayment of tax for which he was liable. Therefore, there are no indications of maladministration in this part of the complaint.
54. We can appreciate that Mr A would have been disappointed with HMRC’s decision that there was no evidence of employer error, leaving him liable to pay the underpaid tax. We can understand why this would have added to his frustration with the situation he found himself in and we are sorry to hear that.
Impacts and remedy
55. We have seen that HMRC did not get everything right when it dealt with Mr A’s tax affairs.
56. The evidence shows that HMRC made an error when it failed to remove the expenses from Mr A’s 2018/19 tax code after Mr A called it in March 2018. In March 2020, it also incorrectly said that either he or his employer must have claimed the expenses, which is why these were added to his tax code.
57. This is not in line with the aims of its Charter and is an indication of maladministration. It resulted in Mr A underpaying tax for two tax years. He told us that because HMRC did not act on the information he gave it in that call, it should cancel the tax arrears for 2018/19 and 2019/20. He also said the events have caused and continue to cause him stress and anxiety and that he experiences panic attacks on occasion.
58. HMRC has a process for considering claims that it did not act on information. The HMRC website explains:
If HMRC did not act on information they were given
You can ask HM Revenue and Customs (HMRC) to cancel tax you owe (‘arrears’) if you think they’ve made a mistake because both of the following apply: • they did not act on information they had • there was a delay in HMRC asking you for the tax
You can do this by asking HMRC to write off the tax under an extra-statutory concession (ESC A19).
59. In its letter to Mr A’s representative in December 2021, HMRC condensed the ESCA19 criteria into three headings:
• HMRC cause arrears by failing to use information it was given • HMRC failed to notify the taxpayer about the arrears within certain deadlines • It was reasonable for the taxpayer to believe their tax affairs were in order
60. All three of the above criteria must be met for HMRC to consider putting aside tax arrears.
61. The deadline referred to is expanded on below:
• 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 Or • Was notified of an over-repayment after the end of the tax year following the year in which the repayment was made
62. The HMRC website explains that HMRC will send notifications if you have not paid the correct amount of tax (either under or overpaid). It says:
If you’ve not paid the right amount of tax
If you’ve paid too much or too little tax by the end of the tax year (5 April), HM Revenue and Customs (HMRC) will send you either: • a tax calculation letter (also known as a P800) • a Simple Assessment letter
63. The evidence shows that for the 2018/19 tax year, HMRC told Mr A about the underpayment in the call of early March 2020 which is within the 12-month deadline. As such, at least one the criteria for ESCA19 are not met for this tax year.
64. The evidence also shows that HMRC sent the annual coding notice to Mr A for tax year 2019/20 in late February 2019. This coding notice would have reflected the fact he was receiving the benefit of expenses though we do acknowledge this might not have been evident. We can also see that HMRC wrote to him in February 2021 to explain the underpayment. As such, at least one of the criteria for ESCA19 are not met for this tax year.
65. We can see that Mr A was informed about the tax arrears within the deadlines set for ESCA19 consideration, so we are of the view that HMRC followed that guidance when it declined to write-off the tax arrears.
66. The error did however cause Mr A unnecessary frustration and anguish and we are sorry to hear that is the case. We have also seen that HMRC added to that impact in the phone call of early March 2020 when Mr A was told that either he or his employer must have claimed the expenses as HMRC would not just have ‘added them on’. We will now look to see if those impacts have been addressed.
67. HMRC’s Charter sets out several standards that HMRC should meet. It says that it will ‘aim to get things right, make things easy and be responsive and fair.’
68. The Charter says, ‘If we make a mistake, we’ll put it right as soon as possible.’ We would expect to see that the impacts of any errors were addressed by HMRC.
69. When deciding on what remedy to offer, HMRC refers to its Complaints and Remedy Guidance. It says in that guidance:
‘Our payments for worry and distress are meant to be a token - a way of acknowledging that our mistakes and delays have affected someone badly. They are not akin to damages and payment does not, in any way, amount to an admission of any legal liability. The payments will usually range between £25 and £500, but experience shows that the vast majority of payments are at the lower end of this range’.
70. HMRC offered two separate financial redress payments for delays and the impact of its errors. £280 (£30 of which was to cover costs incurred) and £70. It also apologised for the errors made. These actions are in line with its guidance. Therefore, we will not take any further action on this complaint.
71. We are sorry to hear about the impacts on Mr A from the matters surrounding his tax affairs. We can appreciate the stress and anxiety he experienced when he was told that he had underpaid tax and would have to repay it. We also acknowledge that he has been interacting with HMRC in relation to this matter since 2018 and has found the whole experience stressful and exhausting.
1. We have carefully considered Mr A’s complaint about HMRC.
2. It is evident from what Mr A has told us that he has found the events he described to be incredibly frustrating and impactful on his mental health. He told us he was exhausted by how much time and effort he has put into trying to get matters resolved. We are sorry to hear this. We appreciate how challenging it can be to endure frustration over a prolonged period.
3. The evidence shows that while Mr A only submitted one expenses claim for the tax year 2015/16, HMRC followed its guidance when it carried that claim forward into subsequent tax years. We have seen that it made an error in its failure to remove the expenses from his 2018/19 tax code. There was also poor communication when it told him that he or his employer must have filed the expenses claims that had been carried forward by HMRC.
4. The evidence also shows that despite his employer not using the correct tax codes and neglecting to inform HMRC of a change of address, this did not meet the criteria for what constitutes an Employer Error. HMRC thereby followed its guidance on Employer Error.
5. The errors and incorrect information given to Mr A meant that it did not act in line with its Charter. This meant there were indications of failings which HMRC addressed by following its complaint and remedy guidance and paying Mr A a financial remedy and providing an apology.
6. We take the view that this has addressed the impact of its errors on Mr A, and we will not take any further action on his complaint to us.