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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I think I have been taxed at the wrong rate

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I think I have been taxed at the wrong rate

Can you elaborate on that a little please.
Customer: replied 3 years ago.

I received a letter from HM Revenue & Customs yesterday that I had underpaid tax for 2013/2014 to the amount of £624.90. I rang to ask why this had occurred and was told that for the past 2 years they had not taxed my Army pension at the Higher rate of Tax.

I believe they would, or should, have know about this earlier and I should not be held liable or accountable for what is, fundamentally, their oversight


When you started to take your Army pension, did you take another job? If so, when was this exactly?
Customer: replied 3 years ago.

My army pension started on 01 April 2001 which is the date I was discharged. I was able to start work with my current employer on 05 February 2001. This is called a Civilian Work Attachment and the company did not have to pay me until my official discharge date


Leave this with me while I draft my answer.
Hi again.

Given that you have been out of the Army for so long, it worries me that you may have been paying the wrong tax on your pension or salary since 2001. It is, however, unlikely that HMRC will go back that far and it appears they are only interested in the last two years.

There have been several million taxpayers in a similar situation to you over the last three years unfortunately. Usually, the underpayments have arisen due to a change of circumstances of the taxpayer which has not been taken account of in tax codings through the inaction of the taxpayer, an employer or pension payer, HMRC or a combination of all of those.

What needs to be done is to find out who is responsible, the taxpayer, the tax office or a third party such as an employer or a pension payer. A pension payer should normally get coding instructions from HMRC if they don't get a P45 issued by a previous employer from the taxpayer as they don't necessarily know if the taxpayer has other sources of income. Some ask, some don't. You may have handed your P45 to your new employer who would have used the tax code shown on the P45.

The law states that taxpayers are ultimately responsible for ensuring that their taxes are in order and HMRC have to accept that it was reasonable for you to believe that they were in order for you to be absolved of any responsibility for an underpayment occurring and for you not to have to pay it.

There is a set process for appealing against HMRC in cases such as this. There is no other way of handling it. The first thing you need to do is to satisfy yourself that the tax office P800 calculation of the underpayment for each of the two tax years is correct. If it is, you should write to the tax office and ask them to review your case and ask for an explanation as to why you are underpaid and to write off the tax owing under Extra Statutory Concession A19 which they should do if they did not use information supplied to them that should have enabled them to get your taxes in order within the time limit set out in that concession. You might point out that you have been out of the Army since 2001 and ask why this problem appears to have come to light only recently.

If the tax office maintain they weren't responsible for the underpayments after reviewing your case, you should ask for a second review by another tax officer. After that, if you need to, you can make a complaint to The Adjudicator's Office here and then, if necessary, to The Parliamentary Ombudsman here.

If you do have to pay the tax you can negotiate with the tax office to pay it over a period of time. You should read the notes here and here which may have relevance to your case.

I hope this helps but let me know if you have any further questions.
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