You’ve received a tax demand for £35 out of the blue. You don’t know how you’ve come to owe tax as PAYE applies to all your income. It seems a waste of your effort checking the figures for a relatively small amount. Should you just pay up?
Tax bills not worth the effort
For many years HMRC adopted a policy of not assessing tax if the amount involved was small. 40 years ago the limit was £30 and eventually became £70. However, that was in the days when the Inland Revenue, as it was then, had to go through the rigmarole of manually writing or typing an assessment, posting it to the taxpayer and notifying the collector of taxes to issue demands. The so-called assessing tolerance disappeared with the introduction of self-assessment in 1996. However, HMRC has found it necessary to renew this old policy, but not in all situations.
Taxes management
If you submit self-assessment tax returns you’ll have to settle the tax bill that results, however small the amount. However, we have seen HMRC routinely make adjustments to eliminate very small debts, typically no more than £2. The legislation gives HMRC management powers to do this. It can, but very rarely does, use the same rules to write off larger sums, but it’s absolutely not open to negotiating a debt down, so don’t bother trying.
Trap. HMRC will seemingly write off a debt if it loses track of someone who owes it money. But don’t be fooled, this is usually no more than a temporary reduction. So if you change address and disappear off HMRC’s radar, when it eventually tracks you down it will reinstate the tax charge and add interest to the bill.
HMRC statements
These days HMRC issues informal tax calculations known as P800s . The idea behind these is that rather than force individuals with simple tax affairs to complete self-assessment returns HMRC uses the information it has to decide if you you’ve over – or underpaid tax. It then politely asks you to pay (or if you overpaid tax, refunds you). The debt is not enforceable and so if you refuse to pay HMRC is likely to send you a self-assessment form to fill in or, if you have income that’s taxed through PAYE, adjust your tax code to increase the amount you pay on your salary etc.
Trap. P800s are often inaccurate and you should check them, especially if they include estimated figures (savings or investment income is usually estimated). HMRC must adjust the P800 if you provide it with the correct figures.
HMRC simple assessments
A few years ago legislation was introduced to allow HMRC to issue simple assessments in certain circumstances where a P800 is not suitable. Tax payable on a simple assessment is enforceable, but they too often include estimates and should be checked. Unlike P800s you must formally notify HMRC within 60 days if you disagree with the figures.
Tip. HMRC’s practice of not issuing assessments or P800s for small amounts is back on the menu. It should not assess you if you owe less than £50. If you receive such an assessment/ P800 call HMRC on the number shown on the document and ask for the debt to be cancelled. It will usually agree to this.
If you’ve completed a self-assessment return you must pay the demand, assuming the amount requested ties up with your calculations, no matter how small it is. However, if the demand is in respect of a Form P800 or simple assessment and is for less than £50, HMRC ought not to have sent it. It will usually cancel the charge if you ask.