Are HMRC always correct?

I was recently told that “HMRC are always correct!”. Although HMRC will collect and administer the majority of taxes correctly they are not always correct.

With the increasing complexities within tax law and HMRC being more aggressive we have identified three areas HMRC are not administering correctly:

Allocation of Personal Allowance

In the past your personal allowance (the amount you can earn before paying tax) was allocated against your non-savings income, savings income then dividends, as this was the most tax efficient way to utilise your allowance. However, with the introduction of additional reliefs this is not always the case.

Individuals are instead allowed to allocate this in a different way which can produce a lower tax liability. Unfortunately HMRC’s systems do not automatically do this which can result in individuals paying additional tax of up to £250.

Enquiry Procedures and Penalties

When an individual completes a Tax Return, HMRC are able to enquire into it. However, this must be done within specific deadlines. If HMRC are outwith any deadlines they must use additional legislation to extend these time limits.

Unfortunately we have seen cases where HMRC do not use the legislation correctly and they will look to extend these time limits. 

Where HMRC have extended any enquiry time limits they will also look to charge further penalties.

Directors Tax Returns

HMRC have always advised that company directors should complete a Tax Return even if they only receive a small wage from the company. This is shown on their guidance; however, it is not what the tax law states.

A tax case in 2017, which HMRC lost, demonstrated that company directors do not need to complete Tax Returns by virtue of them being directors alone.

Unfortunately HMRC’s guidance has not been updated to reflect this and they may still insist on one being complete which adds to a businesses administration and costs.