That HMRC ‘blunder’, P800 letters and ESC A19

As has been widely reported in the mainstream press, HMRC are currently writing to taxpayers who have paid the incorrect amount of tax through the PAYE system in 2008-09 and/or 2009/10. Contrary to the views of some commentators there has been no new ‘blunder’ or ‘error’.

The PAYE system only ensures that employees pay exactly the right amount of tax every year if they have no benefits in kind, do not change their jobs during the year and have no other sources of income.

For all other employees the PAYE system invariably results in under or overpayments of tax each year. In most cases these are resolved through an adjustment to the notice of coding in a later year.

This year HMRC have used a new computer program to perform their annual reconciliation faster than usual. The new system has also enabled them to identify how many taxpayers are affected – thought to be approximately 5.7 million taxpayers. Of this number around 4.3 million are thought to be entitled to a tax refund and 1.4 million are thought to have paid too little tax.

HMRC started by sending out about 45,000 letters (P800) containing their reconciliations to affected taxpayers. The remainder of HMRC’s letters are expected to be sent out by the end of December 2010.

Most of those people who are thought to have paid too little tax will owe less than £2,000 and, as usual, these underpayments will be collected through PAYE over the course of the next year (April 2011-12). Anyone owing more than £2,000 will be asked to pay this more promptly but can request time to pay.

All of HMRC’s tax calculations and reconciliations need checking as they may contain mistakes. Additionally, in some cases the underpaid tax need not be paid if your circumstances fall within the terms of Extra Statutory Concession (ESC A19). HMRC have recently republished this on its website. It applies only in specified situations where HMRC have failed or delayed to use relevant information, within 12 months after the end of the tax year in which it was received.


Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.