HM Revenue and Customs

9. In July and August 2022, Miss B contacted HMRC by telephone to get some advice about the rate and amount of tax she might pay on a pension lump sum payment. She was given some guidance but was told that she could not submit a refund claim form until the pension income showed on her PAYE record. It was not showing at that time.

10. At the beginning of May 2023, Miss B called again explaining she had received the pension lump sum payment and what tax she had paid on it. She asked HMRC to send her a tax refund claim form (called a P55) as she was unable to complete the form online. It did so.

11. A few days later Miss B submitted the P55 and went on to receive a tax refund. In August 2024, HMRC wrote to Miss B and explained that she had underpaid tax in 2023 and needed to repay almost £6000. Miss B complained to HMRC in July 2024 and was told the calculations were correct. She asked for the complaint to be considered at Tier 2 of the process and received a response in October 2024 that identified there had been errors on the part of HMRC but reiterated that the calculations were correct.

12. Miss B took her complaint to the Adjudicator’s Office (AO) in October 2024, and the AO wrote to her in April 2025. It partly upheld her complaint but confirmed that the refund overpayment would need to be repaid.

13. Miss B then brought her complaint to our Office later that month.

Failed to adhere to its guidance

15. Miss B complains that HMRC made errors in how it handled her tax records. She says this resulted in her receiving a tax refund that was more than what she was entitled to and which she now must pay back.

16. HMRC accepts it failed to update Miss B’s records correctly and missed opportunities to do so. It explained that it was not the error that led to the overpayment of tax.

17. The evidence shows that in December 2020, HMRC received a notification from the Department for Work and Pensions (DWP) that Miss B had started a claim for Employment and Support Allowance (ESA).

18. Once HMRC receives that notification, its PAYE guidance says it should check to see if there is a current primary employer on file for that claimant. The guidance says:

‘If there is a current primary employment (not an occupational pension / retirement annuity), [the system] will flag any current primary employment as ‘Potentially Ceased’ and create a new primary ESA employment.’

19. It did this and at the beginning of January 2021 HMRC received a notification from DWP that the ESA claim had ended. At this point, the PAYE guidance says it should remove the ‘potentially ceased’ flag and the employment source be set to the primary employer if continuing employment income is identified. This would then lead to tax codes being issued to both the employer and Miss B.

20. We see, however that HMRC did not issue any tax code notices to Miss B or her employer during that period. This is likely because of HMRC failing to remove the ‘potentially ceased’ flag which then led it to act in line with the PAYE guidance says that if no live employment is shown on the tax record, then no codes will be issued.

21. Our Principles of Good Administration say:

Public bodies should create and maintain reliable and usable records as evidence of their activities.

22. HMRC accepts it failed to update Miss B’s records correctly to show that she was in employment and as a result it failed to issue tax codes when it should have. This is an indication of maladministration, and we will look at the impact of this later in the document.

23. Miss B also complains HMRC missed opportunities to correct the error in 2022 and 2023. She says it failed to update its system, and it could have prevented the overpayment of the tax refund had it done so.

24. The evidence shows that there were four calls from Miss B to HMRC between July 2022 and May 2023. In the call of July 2022, Miss B enquired about taking a lump sum payment from a pension provider and the best time to do that. The call handler provided some general advice on this matter, answering Miss B’s enquiry.

25. The next call from Miss B to HMRC was in August 2022. She told the call handler that she had been in employment since April 2022 and wanted to know how much tax she might pay on a lump sum from her pension provider should she decide to take it. She was asked in that call how much income she expected to receive from employment the following tax year. Miss B told the call handler that she would only be getting the lump sum and no employment income. This turned out not to be the case as Miss B’s employer unexpectedly paid her some monies during the subsequent tax year which she had not expected. We will return to this latter point later in this document.

26. Miss B was asked about her employment in this call, and this was an opportunity for HMRC to make sure Miss B’s tax record was correct, but it did not do so. There is no guidance that says the call handler needs to carry out these checks however HMRC told us it would expect the discrepancy would be identified.

27. As we previously referred to, our Principles say a body should create and maintain reliable records. We consider this was a missed opportunity to amend the records to reflect Miss B’s employment status and remove the ‘potentially ceased’ flag.

28. We consider this to be an indication of maladministration.

29. Miss B called again at the beginning of May 2023 to speak about the lump sum pension payment which she had taken. She told them about income she had received from her employer. Again, the call handler looked at Miss B’s tax records which included information from Miss B’s employer about income she had been paid. Unfortunately, they did not note that the record was incorrect.

30. As before, this is not in line with our Principles, and it resulted in a missed opportunity to amend the records. We consider this to be an indication of maladministration.

31. The final call we considered was one in late May 2023. Miss B called to follow up on a tax refund claim form she had sent to HMRC earlier that month. The call handler referred the matter to another team who reviewed the form. The team noted that Miss B’s employer was not shown as a live source of income. Despite this it went on to issue the refund Miss B had claimed.

32. This is not in line with our Principles, resulting in another missed opportunity to amend the records. We consider this to be an indication of maladministration.

33. We will consider the impact on Miss B of this accumulation of missed opportunities as well as the original error later in this document.

Failed to provide necessary information

34. Miss B complains that HMRC failed to give her information about the potential impacts of her taking a pension lump sum. This resulted in her receiving a larger tax refund than she was entitled to and caused her problems when HMRC asked for some of that money back. She told us she would not have taken the refund at that time had she known it could result in her being given too much and having to repay it.

35. HMRC explained that it should have given her that information but the amount of the tax refund was not related to that information but rather the details Miss B had provided about her expected income which proved to be inaccurate.

36. The HMRC Charter says:

We will give you accurate, consistent, and clear information. This will help you meet your obligations and understand your rights and what you can claim. When we ask for information, we rely on you to give us full, accurate and timely answers.

37. In the call to HMRC in August 2022 and early May 2023, HMRC told us that Miss B should have been read the following statement:

‘Your pension provider will have paid the first 25% of your pension tax free. The remaining 75% of the pension payments will have been taxed on a week one / month one basis.

You can claim an in-year tax refund, and this may affect the end of year tax position if you have another job or pension. You may not be entitled to one if a job you have already uses your own Personal Allowance for the year. You can claim an in-year tax refund, and you may end up paying too little tax, or you can wait until after the end of the tax year.’

38. She told us that she did not recall being read that statement at the time. The evidence shows that there is no record of the statement being read to her in the HMRC call records. This is not in line with the Charter and is an indication of maladministration. We will consider the impact later in this document.

HMRC refused to write-off the overpayment

39. Miss B tells us that this missing advice prevented her from making different decisions. She complains HMRC has refused to ‘write-off’ the overpayment.

40. The evidence shows that Miss B had underestimated how much income she was going to earn when she told HMRC she expected it to be £6000. As we mentioned earlier, her employer unexpectedly paid her more than that, £11,209.05. This meant that the calculations made by HMRC were incorrect as it has used Miss B’s expected income that she had provided (£6,000) to base the tax refund on. It is this that led to the overpayment, and we do not see any evidence that the failure to advise Miss B about the potential impacts of taking a lump sum pension would have prevented this.

41. HMRC has a mechanism to consider whether it can give up underpaid tax, it is called an Extra Statutory Concession (ESC). The applicable one is ESCA19 which allows it some discretion to give up the monies, but certain criteria must be met. HMRC must have:

• Failed to make a proper and timely use of information received from a customer or employer about a change to income, gains, or personal circumstances and • Told the customer about the tax they owe more than 12 months after the end of the tax year in which HMRC received that information • The customer must also have had a reasonable belief that their tax affairs were up to date

42. HMRC told Miss B that it could not give up the underpayment as it had acted on the information she had given it, an expected income of £6000. We have identified this is what happened. We acknowledge that she was not expecting to earn more than that and can appreciate that it came as a surprise to her. The fact it led to her refund being too much was an unfortunate consequence, and we are sorry to hear it led to the distress she experienced.

43. We can see that HMRC has acted in line with its responsibilities under ESCA19 in not writing off the underpayment. Therefore, there are no indication of maladministration.

Impact and remedy

44. We have identified that there are indications of maladministration in the accuracy of Miss B’s tax record and missed opportunities to address that inaccuracy.

45. When considering how it should remedy any mistakes it has made that have resulted in an injustice to a customer, HMRC refers to its CRG. It says:

‘Our payments for worry and distress are meant to be a token - a way of acknowledging that our mistakes and delays have affected someone badly. They are not akin to damages and payment does not, in any way, amount to an admission of any legal liability. The payments will usually range between £25 and £500, but experience shows that the vast majority of payments are at the lower end of this range’.

46. The evidence shows that HMRC has apologised to Miss B for the errors we have identified and offered her £200 to acknowledge the impacts on her. This is in line with its guidance.

47. This is also in line with level 2 of our Severity of injustice scale, which recommends between £120-£550 for distress, inconvenience, or pain, which lasts between a few days and six months. A level 2 injustice would usually have a relatively low impact. This would be where we would expect the person affected to recover quickly once the poor service had ceased. Level 2 injustice will not usually have a significant lasting impact, or any effect on the complainant’s ability to live a relatively normal life.

48. We appreciate that the request for a repayment of tax, coupled with learning that HMRC had missed opportunities to address errors in her tax records, would have been upsetting for Miss B. Also being told that HMRC had failed to give her advice that she was entitled to receive only added to her distress. We are sorry to hear that.

49. While we appreciate Miss B’s views on the need to repay the overpayment, we find the £200 payment puts right the upset, frustration and distress caused by the errors identified by us and the AO.. We therefore find HMRC has done enough to put this right for Miss B and will take no further action.

1. We have carefully considered Miss B’s complaint about HM Revenue and Customs (HMRC).

2. We are sorry to hear of the distress and frustration she experienced because of the error made by HMRC that resulted in her tax records being incorrect. These impacts were worsened when HMRC missed opportunities to correct the error.

3. We have seen that HMRC has acknowledged and apologised for the errors and missed opportunities and offered a financial remedy of £200 to address the impact on her. This is in line with its remedy guidance and our Severity of Injustice scale.

4. We have also seen evidence that HMRC acted in line with its Extra Statutory Concession guidance when it declined to give up the underpayment of tax and ask that Miss B repay it.

5. Based on what we have seen, we will not take any further action on this complaint. We explain in more detail below how we reached this decision.

Complaint

6. Miss B complains that HMRC did not adhere to its guidance in handling her PAYE tax records and failed to provide her with necessary information and advice when it should have. She also complains it did not write off the overpayment despite admitting it made mistakes.

7. Miss B tells us this contributed to her being overpaid by £6000 and the subsequent demand for repayment has caused her financial hardship, upset, frustration and distress.

8. Miss B says she would like HMRC to reconsider its decision that she needs to repay the overpayment.