HMRC loses the plot over ESC A19

HM Revenue and Customs seen from Parliament Square (Whitehall, London, England). Photographed by Adrian Pingstone in June 2005 and placed in the public domain. (Photo credit: Wikipedia)

The Concession

For those not familiar with Extra Statutory Concession A19, here is HMRC's own commentary on the subject. To quote the beginning:

“If you think that HM Revenue & Customs (HMRC) should have already collected the tax due in your Tax Calculation (P800) because the information had already been provided to it and HMRC have failed or delayed to use this information, then in some limited circumstances HMRC may agree not to collect it.

An 'Extra Statutory Concession' (ESC A19) allows HMRC to do this and it only applies to individual taxpayers who owe Income Tax and Capital Gains Tax. It does not apply in any other circumstances where amounts owing to HMRC are in dispute.

The circumstances are that HMRC should have used the information provided within 12 months after the end of the tax year in which it is received to notify the taxpayer of any arrears.”

As it says on the tin, the relief is concessional and therefore discretionary. So what am I complaining about?

Recent history

Back in the summer of 2010 HMRC had improved their software for finding overpayments and underpayments of tax mainly in respect of the majority of people taxed under PAYE who are not required to submit tax returns under Self Assessment. These differences covered a number of years generally from 2006-07 onwards though I believe there were an odd few from a year or so earlier.

If HMRC were not fairly quick in recovering what tax they thought they were owed, they would have been statute-barred from collecting it. So they set about sending out calculations of tax generally outstanding for the previous three or four years.

Many of the people caught out were pensioners with usually more than one occupational pension, though the pensions themselves are often quite modest. Obviously there was a furore and a campaign in the newspapers, many of which drew attention to ESC A19. Individuals with unexpected tax demands of often £5,000 - £6,000 made claims under ESC A19 and many, possibly most of the claims by pensioners in this situation were allowed. Great, and it seems only fair that people of modest income with almost none from savings (with such low interest rates) should not be landed with such an unexpected tax burden.

However, not all the underpayments of tax (yes, and some overpayments) were found in the first wave. HMRC have continued to run their program, many more differences have been found, and calculations sent to unsuspecting taxpayers including many more pensioners.

A sad tale

Consider the case of one lady, who following the death of her husband a few years back, actually visited an HMRC office back in the days when one could, and went through her income sources requesting that HMRC made sure her tax affairs would be in order. Four-and-a-half years later (at the end of 2011) she received a demand from HMRC for more than £6,000. Apparently she had been given allowances against more than one occupational pension.

She made a claim under ESC A19, which has been refused and her appeal turned down. Yet all pension providers must have advised HMRC by 19th May annually of the amounts paid to their pensioners in the previous tax year. Surely “HMRC... failed to use information received about a source of income, within 12 months after the end of the tax year in which the information is received” especially when you consider the lady visited HMRC's office back in 2007.

Yet HMRC says the lady fails the “reasonable belief” test. Presumably because the HMRC officer she saw in 2007 did nothing following her visit and did not type a note into the computer system, HMRC is prepared to call the lady a liar.

Patent unfairness

HMRC seems to be resisting every ESC A19 claim now. I suppose there has been an internal memo that to much tax was being lost or leaked because of the claims made.

Yes, we are dealing with a concession. Yet the current attitude of HMRC is patently unfair as I have no doubt that if the initial claim had been made in December 2010 rather than December 2011 it would have been allowed and the tax written off. It is hardly the lady's fault that HMRC took an extra year to re-calculate her tax liabilities and certainly not her fault that HMRC failed to act following her visiting their office in 2007 at her own initiative. Except, as I said, that they seem to be calling her a liar.

In my view it is patently unfair that almost identical claims made a year apart have been treated entirely differently. I have no doubt that back in 2010 some more extreme claims were allowed by mistake.

I do not think it unreasonable to expect that HMRC should be even-handed in dealing with similar cases where taxpayers really were entitled to believe that HMRC had all relevant information. Internal directives (yes, there must have been one) should not mean that one British taxpayer should be treated differently from another.

What is your experience?