Please continue the search as I need some concrete advice on this.
The issue is that the HMRC made a serious error in not checking the P46 issued in November 2011. Their initial feedback when I appealed over the Tax arrears stated they had checked it, found I had ticked the "A" option and that they had done a thorough investigation and had found nothing wrong in their tax assessment.
I was able to show them a copy of the P46 with the "B" option ticked, so they had no reason to make the error they did and should have given me the correct tax code, i.e. based on the earnings I already had made in that tax year. In fact their statement about having done a proper and thorough analysis of my situation was based on a completely false assertion that I had ticked the "A" option, so how could it have been checked properly, if at all?
What I need to understand is what "concession" I am entitled to, if any, now that I have spent the money in good faith, assuming my monthly net payment was accurate at the time. Even if I have to pay it all back, why should I face interest charges (from HMRC or my Bank if I take out a loan), as I cannot pay it all back in one go?
So any advice on this would be most welcome.