Getting to grips with the basics
For the majority of people, roughly 75% of the UK population, direct contact with HMRC is likely to be rare. Your employer, bank, or pension provider pays any tax liability on your behalf, often without you needing to do a thing.
Unless you have a second property, a second job, multiple sources of income, or benefits in kind, you may never need to communicate directly with HMRC. That sounds reassuring, but the downside is that it creates a comfort zone from which it is surprisingly easy to sleepwalk into unforeseen problems as your personal circumstances inevitably change.
People move jobs, move home, retire, invest, give, and are given to. Things rarely remain the same forever, and these changes in circumstance can affect your tax liabilities.
When retirement changes everything
The most common point at which things go wrong is retirement. When people retire, they will typically have at least two different sources of income paid to them within the same tax year. Sometimes they may have three or more: multiple pensions, the State Pension, and potentially part-time work on top.
It is not always possible for HMRC to accurately predict the correct tax codes for all of these different sources of income arriving simultaneously in the first year of retirement. It would be a serious mistake for a newly retired person to assume that HMRC can anticipate these income sources and immediately apply the correct tax deductions to each one.
That said, HMRC often get tax codes wrong even after the taxpayer has provided up-to-date information. In some cases, the retired taxpayer may have a legitimate case if they can show that HMRC should have known the circumstances, reacted with common sense, or at least prevented the same error from recurring year after year.
Received an unexpected HMRC demand? If you have received an out-of-the-blue bill for unpaid tax in previous years, do not assume you simply have to pay it. There may be grounds to challenge or reduce the amount, particularly if HMRC delayed acting on information they already held. Speak to us before making any payment.
What changes trigger a tax issue?
Common life events that can affect your tax position include:
- Starting or leaving employment: a new job, redundancy, or becoming self-employed
- Retirement: drawing a pension alongside other income sources
- Acquiring a second income: freelance work, part-time roles, or investment returns
- Buying or selling property: rental income or Capital Gains Tax on disposal
- Receiving an inheritance or large gift: potential Inheritance Tax or CGT implications
- Changes in marital status: marriage, civil partnership, or divorce
HMRC's error concession: ESC A19
If HMRC already held the information needed to prevent an underpayment but failed to act on it, you may be entitled to relief under Extra-Statutory Concession A19. Under this concession, HMRC may be required to write off or reduce an underpayment that arose through their own delay or inaction.
Challenging HMRC demands does require evidence: the relevant P60s, pension statements, and correspondence from the years in question. If you have that paperwork, we can review your position for a fixed fee and advise whether you have a valid case.