HMRC’s Tax Calculations Warning – may contain Errors!

HMRC has recently sent out its tax calculation Forms P800 and PA302 for 2017/18. According to reports, a higher than usual number of these contain errors. If you’ve received a tax calculation what should you be checking?

P800 or SA302, what’s the difference?

In 1996 HMRC forced millions of taxpayers into the self-assessment system. Some years later it was doing its utmost to take people out of the self-assessment system and revert to making its own assessments in the shape of Forms P800. The trouble with that arrangement is that it’s informal, i.e. not backed by legislation. In 2016 HMRC was given new and legally enforceable assessment powers. Since then it’s been allowed to issue so-called simple assessments, Forms PA302. These haven’t replaced P800’s and the two types of tax calculation run alongside each other.

When and who?

The main run of P800’s and PA302’s are sent out in August and September following the end of each tax year. You’ll only receive one if you’ve had income to which PAYE relates, i.e. employment or pension income, and HMRC believes you paid too little or too much tax. Usually (but definitely not always) you can rely on HMRC using the correct PAYE income figures for both forms, but other figures are less reliable. Plus, for 2017/18 there’s been a problem with duplication.

Duplicated assessment

HMRC is only allowed to issue you a P800/PA302 if you aren’t required to complete a self-assessment tax return. It has authority to remove you from self-assessment and issue a PA302 instead, but sends P800’s only where you weren’t in the self-assessment system. The combination of the different processes is probably behind the reports of PA302’s being issued even where self-assessment applied for 2017/18.

Tip. If you’ve submitted a self-assessment form for 2017/18 and received a PA302 or P800, write to or call HMRC and ask for one or other to be cancelled. However, that’s not the end of the matter if HMRC keeps the P800/PA302.

Employment and pension figures

Both P800’s and PA302’s use information automatically transferred from PAYE records submitted to HMRC electronically by employers and pension companies. These are mostly reliable, but because the HMRC’s PAYE system is far from perfect you should still check the figures against your own records, e.g. Forms P60 or P45 (certificates of pay and tax).

Estimates and guesses

Check even more carefully the figures for income which aren’t linked to your employment or pension. The longer it’s been since you submitted a self-assessment tax return, the more inaccurate these are likely to be as they are estimates based on the last known actual figures HMRC has on record. Pay special attention to interest, dividend and property rental income, plus outgoings for pension contributions and job expenses.

Tip. It’s important to notify HMRC of income it has understated as well as overstated. If HMRC later discovers that its assessment was insufficient, it might be entitled to collect not just the shortfall but also charge you penalties and interest.

 

To summarize, if you’ve submitted a self-assessment for 2017/18 and receive a PA302 or P800, you need to ask HMRC to cancel one. Check all figures against your records but pay special attention to interest, dividends and rental income, plus outgoings for pension contributions and job expenses, as all these are likely to be estimated.

For more information, we provide a Business Consultation to ensure our clients benefits from tax planning and accounting matters.

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