Small error leads to big tax demand

P.R. writes: A client of my accountancy firm, Mr G, received a demand from Revenue & Customs, showing that in 2014-15 he underpaid income tax by £56 on three small private pensions. The pensions totalled £1,335 and tax of £364 was deducted at source. As Mr G did not pay the £56, the Revenue resurrected the old selfassessment account and issued a 2014-15 tax return, which nobody knew about until much later. Now the tax office is trying to collect £1,300 in penalties for failure to submit the return. MR G retired in 2006 and ceased having to complete self-assessment tax returns because his only income was the state pension and his three small private pensions. It is unclear why the £56 was not collected at source.

His tax office explained it was not allowed to deduct more than half of a pension in tax. But £364 is a lot less than half of £1,335, so that does not add up.

Normally, any Pay As You Earn debt is carried over to the next year and collected along with that year’s tax deductions.

There is no obvious reason why this was not done, but because Mr G did not respond to the demand for a one-off payment, his tax office seems to have overreacted.

I asked the Revenue’s head office to look into this and staff there told me: ‘An error had been made in the taxpayer’s record. This has been corrected to ensure the correct tax is deducted from future payments.

‘We have cancelled the penalties and waived the outstanding tax. The situation has been explained to the taxpayer and we have apologised.’

The right outcome.