Mary Appiah submitted her 2016/17 tax return on time, and paid the £903 due for that year on 31 January 2018. So she was very surprised to receive £90 penalties for not paying her tax on time, and challenged those penalties at the tax tribunal.
HMRC had allocated the £903 paid for 2016/17 against her liability for 2015/16, but didn’t tell her it had done this until 29 October 2018. The tax liability for 2015/16 arose because Mary had an outstanding income contingent student loan, and her accountant had not ticked the box on her 2015/16 return to declare that. The loan was repayable through her SA tax return.
The tax due for 2015/16 (£1633.41) was not apparent until HMRC compared Mary’s 2015/16 return to the Student Loan Company records. HMRC amended the SA 2015/16 return record on 18 January 2018, but didn’t inform Mary of the tax due at that time. She paid the balance due for 2015/16 as soon as she was made aware of it, but this was after the 2016/17 tax had been reallocated.
There were penalties for late payment of the 2015/16 tax, but HMRC cancelled them once the tax was paid. It refused to cancel the penalties for 2016/17.
The tax tribunal cancelled the 2016/17 penalties on the basis that HMRC had not correctly communicated with the taxpayer concerning the tax debts and reallocation of tax payment. The FTT also found she had a reasonable excuse for late payment.
However, all this bother could have been avoided if the accountant had correctly declared the outstanding student loan on the 2015/16 tax return.
Written by the Tax Advice Network