Just because you ask HMRC to do something, don’t assume anything !

A first tier tax tribunal has upheld the decision to issue a penalty after the taxpayer failed to pay his PAYE on time.

In the case of Ross v HMRC [2014] UKFTT 292 (TC) the taxpayer had filed his tax return on time, owing £807.40, He elected for HMRC to collect it through payroll by adjusting his PAYE code which is at best a deferral but has cash flow advantages.

The taxpayer thought he had done his work for another year and forgot about it until a £40 penalty notice arrived.

HMRC sent a letter later rejecting an appeal against the penalty, saying there was insufficient PAYE liability to enable the additional SA tax to be collected through the tax code. 

The taxpayer then requested a review of HMRC’s decision stating that the election to have the tax collected through the tax code had been made ahead of the statutory time limit of the 31 January 2013 and the tax could have been collected through the income for 2013/2014 using a 'K-code', if necessary.

HMRC advised that the tax code would not be adjusted, saying that it was optional as to whether they would do this.

Despite the fact that under PAYE he could have paid the tax spread over 12 months, he was penalised for not paying it until after his appeal letter had been dealt with.

The tribunal agreed with HMRC that it acted correctly by not adjusting the tax code and it was “reasonable and proper” to expect him to have paid his tax on time - on or before 31 January 2013.

HMRC said that they will not code out a sum that would double the normal PAYE due for the year and cannot create deductions via a 'K-code’ that would be more than 50% of income. 

In order to avoid unnecessary & somewhat arbitrary penalties Walker Thompson suggests that taxpayers do not rely upon future coding out but actually pay Self Assessment liabilities which avoids HMRC taking punitive action or indeed administratively getting it wrong.