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It’s HMRC’s fault that I’ve underpaid tax, what now?

Extra-Statutory Concession A19 - 2017/18 and earlier

If HMRC have delayed using information in their possession, and this results in you paying too little tax, HMRC will sometimes write off the arrears of tax under Extra-Statutory Concession (ESC) A19. This guidance is to help you consider whether you can challenge HMRC under this policy.

1. What is ESC A19?

Extra-Statutory Concession A19 is a practice developed by the former Inland Revenue (now HMRC) to cover situations where an error or administrative failure of theirs resulted in someone paying too little income tax or capital gains tax.

Devised to ensure fairness for taxpayers where the strict law says that they owe tax but it would be unfair to pursue payment, its use can alleviate worry and concern for vulnerable taxpayers presented with large, unexpected demands for arrears of tax.

The concession provides for tax to be written off (that is, not collected) in certain circumstances. It has a factual element and a subjective element.

It is generally easy enough to work out whether the purely factual conditions are satisfied. Arrears of tax must have arisen because HMRC have delayed in using information about you which they have had in their possession, and the arrears must usually be at least one year old. Sometimes, the concession can be used to write off arrears which are less than a year old where HMRC’s failure to make use of information has been persistent.

HMRC have agreed to treat P14 information from employers as relevant for the purposes of the 2012/13 tax year onwards, though they did not treat it as such for earlier years.

The subjective element is less easy to satisfy: whether HMRC write off the tax depends on whether they think it was reasonable for you to have believed your tax affairs were in order (see heading 3 below).

You can ask for collection to be suspended while you await the outcome of an investigation.

2. Some examples of situations which may give rise to tax being written off

So when might you be justified in asking for your tax to be written off under ESC A19?

First, bear in mind that A19 usually only applies to underpayments for tax years ending more than 12 months ago - for example, you cannot normally use ESC A19 to ask for tax owing for 2017/18 to be written off if HMRC advised you of the underpayment in, say, June 2018.

However, if HMRC have persistently got something wrong year after year, we would expect them to consider writing the tax off for all years up to and including 2017/18 unless they corrected the error before the end of the 2017/18 tax year. So if you underpaid tax in earlier tax years, and an underpayment in 2017/18 again occurred for the same reasons, A19 might apply. It might help to ask yourself:

  • Did HMRC have all the information they needed to get your tax right in the past? HMRC should have received details of taxable state benefits from the Department for Work and Pensions (DWP) and pay and pension details from employers/pension payers.
  • You might have provided HMRC directly with information that they have failed to use – by personal visit to an Enquiry Centre, by letter or telephone call.
  • Particularly where you have various sources of income, HMRC should send you a ‘P2’ Notice of Coding each year (prior to 2016/17 one for each source) – did you receive them?
  • Perhaps you contacted HMRC about your tax codes and they failed to act on the information you provided or told you everything was correct?
  • Prior to 2012/13, When you reached state pension age, or shortly before, did HMRC send you a form P161 asking for details of your income in retirement so they could work out your codings? If they did, did you fill it in and return it; and did HMRC then fail to act on that information?

3. The ‘reasonable belief’ test

For ESC A19 to apply, it must have been reasonable for you to have believed that your tax affairs were in order. The question is not whether you did in fact believe that your affairs were in order, but whether it was reasonable for you to believe they were.
Importantly, this ‘reasonable belief’ test should be applied by looking at you as an individual. HMRC’s internal guidance requires their officers to consider the following factors when applying the reasonableness test:

  • The size of the arrears and what caused them
  • What information HMRC has sent the taxpayer over the years, such as coding notices, explanatory leaflets, etc
  • Whether HMRC has given the taxpayer wrong or misleading advice
  • Whether HMRC’s actions have muddled the case or made it hard to follow (for example, issuing multiple or incorrect coding notices)
  • Whether the taxpayer has been professionally represented (in which case it may be harder to argue that they reasonably thought their affairs were in order)
  • Reasonable belief may change over time (ie it may be reasonable for a taxpayer to think their affairs in order in one year, but if circumstances change the question may have to be considered again)
  • The taxpayer’s likely level of understanding of tax, taking into account factors such as the taxpayer’s background, age, state of health, etc.

The Manual instructions conclude: ‘if the issue is so finely balanced that it is hard to form a judgement, always give the taxpayer the benefit of the doubt’.

So what factors should be considered? Drawing on the criteria set out in the HMRC official manual, some examples are:

  • If you are a pensioner and have been employed all your working life, with PAYE taking care of your tax, it is perhaps reasonable that you should not have understood all that might go wrong with your taxes on retirement, or failed to identify errors in your tax across multiple sources of income.
  • You might have received numerous tax coding notices which you found incomprehensible or no coding notices at all.
  • In recent years, the information HMRC provide with coding notices has dwindled, so you may have had difficulty checking them.
  • Your age, state of health, other problems in your life (such as a bereavement, or ill-health of a close family member), educational background, literacy and numeracy skills, and disability all might have had an impact on your ability to cope with tax matters.

What should you do?

If you think your situation fits in with the concession, make contact with HMRC as soon as possible – their telephone number and address will be given on the notes accompanying  the tax calculation you have received. If you can't find it, here it is 0300 200 3300.

If you think they have made mistakes and you have evidence to support that, set out the details in your letter or when you telephone. Whenever you contact HMRC, keep a record (that is, keep a note of the date and time of telephone calls, to whom you spoke and what was said; and keep copies of any letters and documentation sent to HMRC with proof of postage).

Make sure you mark your letter as claiming ESC A19 – we have provided an example letter in the appendix below to give you an idea of what to write, subject to tailoring it to your own circumstances as appropriate.

We also suggest you make it clear when you contact HMRC that you wish them to suspend any action to collect the tax they say you owe while they review your case.

5. What happens next? And information about your rights

HMRC will, in due course, come back to you with their decision. There are several possibilities here:

  • They might have investigated your case and considered that your employer or pension payer is at fault and they should seek to recover all or part of the tax from them. HMRC’s guidance (see appendix below) says that they should consider this point as part of their ESC A19 review. At this point you should read our guide to Employer or pension payer error.
  • They might decline A19 treatment.
  • They might decide to allow A19 in part and write off part of the tax.
  • They might allow A19 treatment in full and write off all of the tax. If they do agree to write off the tax, check your PAYE coding notices to ensure that HMRC have not still included it for collection.

If they decline A19 or only allow it in part, you do have other options to get your case reviewed further. First, you can submit a formal complaint asking to have your case reviewed again, giving details of why you feel you have received inadequate help and care from HMRC.

Do not succumb to temptation to pay off any PAYE arrears before your A19 application has been considered. The reason is that if you clear the arrears, HMRC will claim that there are no longer any arrears in respect of which ESC A19 can apply, and refuse to consider the concession. If you do decide to pay something towards the arrears, make sure HMRC know that it is a ‘payment on account’ and made without prejudice to your A19 claim. We suggest you do this in writing.

Read our ‘How to complain’ guide on the ‘When things go wrong’ section of this website. This explains more about how to complain to HMRC and onwards to the Adjudicator and Ombudsman if you are still not satisfied.

The only route to the courts in A19 cases is to seek what is called a ‘Judicial Review’, but unfortunately this is beyond the means of most ordinary taxpayers, particularly as it carries with it the downside of HMRC potentially seeking to recover their costs from you should your case fail. If you do wish to consider this route, you would need to take advice and act quickly as there are strict time limits to request the review which apply from the date of HMRC’s decision.


Extra-statutory Concession A19 - The full text of the concession is as follows:

A19. Giving up tax where there are Revenue delays in using information

Arrears of income tax or capital gains tax may be given up if they result from HMRC’s failure to make proper and timely use of information supplied by:

  • a taxpayer about his or her own income, gains or personal circumstances
  • an employer, where the information affects a taxpayer's coding; or
  • the Department for Work and Pensions, about a taxpayer's State retirement, disability or widow's pension.

Tax will normally be given up only where 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, or

In exceptional circumstances arrears of tax notified 12 months or less after the end of the relevant tax year may be given up if HMRC:

  • failed more than once to make proper use of the facts they 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 they had been given.

HMRC Guidance

HMRC’s guidance to customers on their website:  https://www.gov.uk/hmrc-did-not-act
HMRC’s internal staff guidance can be found in their procedural manuals. It is too long to reproduce here, but if you wish to read it all, you can find it on their website: http://www.hmrc.gov.uk/manuals/pommanual/paye95000.htm

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