HM Revenue and Customs

4. Mr D tells us HMRC wrongly decided to recover tax underpayments for the tax years 2018 to 2019, 2019 to 2020 and 2020 to 2021.

5. Mr D accepts he ticked the wrong section of a starter checklist. This meant HMRC wrongly listed his tax status. He complains HMRC did not use information his employers gave it on more than one occasion. He says if it had done so it could have amended his tax code and avoided the build-up of unpaid tax.

6. For this reason, Mr D says Extra Statutory Concession A19 (ESC A19) should come into play and the alleged underpaid tax should be written off. Mr D also says HMRC did not reasonably consider ESC A19 during the complaints process and as a result it reached an unfair decision.

7. Mr D says he has been financially disadvantaged by HMRC’s mistake and this disrupted his plans to buy a house, which is extremely frustrating. Mr D adds he has been put under unnecessary psychological strain by the situation, and has experienced bouts of low mood and depression.

8. Mr D wants HMRC to make service improvements and pay him financial compensation.

9. HMRC received Mr D’s starter declaration from his employer, Job A, in September 2018. This indicated Mr D’s previous employment with another company, Job B, had ended.

10. HMRC says it received information about Mr D’s salary from Job B in around May 2019. HMRC recalculated Mr D’s account based on this and notified him he had underpaid his tax.

11. A year later, in May 2020, HMRC received further salary information from Job B. In August 2020 it recalculated Mr D’s taxes and notified him of a tax underpayment based on his income from both Job A and Job B.

12. Mr D tells us he left Job A in January 2021. He started work with a new employer, Job C, while still working in a long-standing part-time role with Job B.

13. Mr D says in early March 2021 he got a letter from HMRC listing his employment with two full-time employers (Job A and Job C). This was incorrect and did not list his long-standing part-time employment with Job B.

14. Mr D says that same month he told HMRC his old employer (Job A) needed to be removed from his account and his long-standing part-time employment with Job B was not listed on his account.

15. In the following months Mr D contacted HMRC to try to correct his tax account. Mr D lodged a formal complaint with HMRC in August 2021.

16. HMRC’s complaints process ended in January 2022. It decided it had correctly considered his circumstances under ESC A19 and the underpayment of tax was due. It directed him to the Adjudicator’s Office (AO), which investigates complaints about HMRC, if he remained dissatisfied.

17. Mr D approached the AO in February 2022, and it issued its report in April 2022. The AO did not see HMRC had made a mistake and felt it had correctly considered his circumstances under ESC A19.

18. Mr D approached us via his MP in June 2022.

21. Mr D tells us ESC A19 applies to his case as he meets all the criteria, so HMRC should write off the tax underpayment.

22. ESC A19 offers HMRC limited discretion to 'give up' tax if it does not properly use information and this causes someone to underpay.

23. ESC A19 can only be applied if all the conditions set out in HMRC’s PAYE95025 guidance are met. It states those conditions are:

• ‘Do the arrears arise because of HMRC failure to make proper and timely use of information received from the taxpayer, their employer or the DWP [Department for Work and Pensions]?

• Did the information received by HMRC indicate more tax should have been paid?

• Are CY-1 (previous tax year) arrears involved?

• Has HMRC notified an over-repayment more than 12 months after the end of the tax year the original repayment was made?

• Have we made repeated failures for ‘exceptional circumstances’ to apply, which might lead you to consider giving up arrears of tax for CY-1?

• Do you think it was reasonable for the taxpayer to believe that their tax affairs were in order?’

24. Mr D says his circumstances fit all the above criteria.

25. For example, Mr D says during the 2018 to 2019 tax year HMRC had many opportunities to spot the discrepancies in his employer’s details.

26. He says HMRC did not receive a P45 from Job B during the 2018 to 2019 tax year.

27. A P45 is issued by an employer once someone stops working for them. A P45 will show how much tax the employee has paid on their salary so far in the tax year (6 April to 5 April).

28. Mr D says HMRC should not have removed this employer from his account without such paperwork, and this represents a long-standing error recognised under the ESC A19 criteria.

29. Mr D says he contacted HMRC to make it aware the wrong employers were listed on his account and Job B was not listed at all when it should have been.

30. Mr D adds he is not an accountant and was not doing his own tax returns at the time. He says he does not understand tax coding and how money is deducted by HMRC.

31. He says there is ‘no possible way I could have known that my taxes were not in order’.

32. HMRC told us ESC A19 was not applicable in Mr D’s circumstances.

33. It says it must first consider whether the underpayment resulted from its failure to make proper and timely use of information made available to it. This is the first condition set out in PAYE95025 and must be met.

34. HMRC says it received a starter declaration from Job A in September 2018 showing Mr D’s previous employment with Job B had ended. HMRC updated its records to reflect this.

35. After HMRC received further salary information from Job B in early 2019, it issued a P800 in June 2019 showing the tax underpayment on Mr D’s account.

36. A P800 notifies someone if they are due a tax refund or if they have underpaid and owe HMRC tax.

37. HMRC says because it acted on the tax information it received and notified Mr D of this in a timely manner, in line with the PAYE95025 guidance, it would not write off the underpayment.

38. Having carefully considered this, we cannot see HMRC did anything wrong.

39. According to its PAYE95025 guidance, all the criteria must be met to allow HMRC to write off any underpayment.

40. Because HMRC appears to have acted on the information it received and notified Mr D of the resulting underpayment, we cannot see it made a mistake in relation to the first point in the guidance:

‘Do the arrears arise because of HMRC failure to make proper and timely use of information received from the taxpayer, their employer or the DWP?’

41. So HMRC would not need to move on to consider the rest of the PAYE95025 criteria for the problems Mr D describes in the 2018 to 2019 tax year.

42. For this reason, we see no signs HMRC got something wrong in its ESC A19 consideration for the 2018 to 2019 tax year and it appears to have acted in line with guidance in declining Mr D’s request.

43. As previously explained, Mr D was concerned HMRC failed to obtain a P45 for Job B and included the wrong employers on his tax record.

44. While we do not see this will have impacted on the ESC A19 consideration for the 2018 to 2019 tax year, as set out above, we understand HMRC continued to receive salary information from Job B during the following 2019 to 2020 tax year.

45. In response, HMRC recalculated Mr D’s taxes in August 2020 and issued a further P800 showing the resulting tax underpayment.

46. HMRC agrees it did not make timely use of the salary information it received from Job B.

47. It says income had been recorded for the 2018 to 2019 tax year and, because this continued, it could have made more timely use of it at the beginning of the 2019 to 2020 tax year and reviewed Mr D’s tax position.

48. HMRC agrees it failed to act in line with the first part of its criteria (set out above), so it would move onto the next relevant point in its PAYE95025 guidance, which is:

‘Has HMRC notified an over-repayment more than 12 months after the end of the tax year the original repayment was made?’

49. HMRC says because it issued a P800 in August 2020, which notified Mr D in good time of the tax underpayment, there was no justification for applying ESC A19.

50. Even if we consider HMRC should have made better use of the continued salary information it received from Job B and updated Mr D’s tax record (in line with the first condition set out in PAYE95025), it still told him about the resulting tax underpayment within 12 months of the end of the relevant tax year.

51. It seems HMRC acted in line with the fourth condition set out in PAYE95025 and would not need to consider the rest of the PAYE95025 criteria for the problems Mr D describes in the 2019 to 2020 tax year.

52. For this reason, we see no signs HMRC got something wrong in its ESC A19 consideration for the 2019 to 2020 tax year and it appears to have acted in line with the guidance in declining Mr D’s request.

53. In considering the 2020 to 2021 tax year, we can see HMRC agreed it made some mistakes in how it handled Mr D’s tax account by not correctly listing his employers and their pay and tax details.

54. This appears to match what Mr D told us in his complaint form. He says HMRC had listed Job A as his primary job, when in fact he had left this employment, and listed Job C as his secondary job, but this was now his primary job.

55. HMRC says it had until 5 April 2021 to make Mr D aware of the underpayment resulting from its error, in line with the fourth condition set out in PAYE95025.

56. We can see HMRC wrote to Mr D on 5 April 2021. This letter set out changes to Mr D’s tax liability due to an underpayment in the 2020 to 2021 tax year.

57. We can therefore see HMRC informed Mr D of the tax underpayment in line with the fourth condition set out in PAYE95025.

58. For this reason, we see no signs HMRC got anything wrong in its ESC A19 consideration for the 2020 to 2021 tax year and it appears to have acted in line with guidance in declining Mr D’s request.

59. We have decided to take no further action in Mr D’s complaint as there are no signs HMRC got anything wrong in its ESC A19 consideration and overall it appears to have acted in line with applicable guidance alongside our Principles of Good Administration, which say:

‘All public bodies must comply with the law and have regard for the rights of those concerned. They should act according to their statutory powers and duties and any other rules governing the service they provide. They should follow their own policy and procedural guidance, whether published or internal.’

60. We understand Mr D is upset by HMRC’s decision, and this has caused psychological strain, but we hope our statement gives some reassurance HMRC correctly followed the process in reviewing his circumstances in line with applicable guidance.

1. The Parliamentary and Health Service Ombudsman is sorry to hear of Mr D’s concerns and appreciate he firmly believes the HM Revenue and Customs (HMRC) decision is wrong.

2. The evidence available to us indicated HMRC correctly reviewed Mr D’s tax underpayment and acted in line with applicable guidelines and standards. We hope our decision will give Mr D some reassurance.

3. We have decided to take no further action and this statement explains in detail how we reached this decision.