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HMRC internal manual

PAYE Manual

HM Revenue & Customs
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Reconcile individual: HMRC delay: ESC A19: reasonable belief - factors

The following points confirm some of the factors relevant in making a decision. They are not exclusive and the reviewing officer should take any other relevant factors into account before making a decision.

The remainder of this subject is presented as follows


The size of the arrears and what caused them

The larger the proportion of the arrears in relation to the overall tax due for the year the less likely it is that the taxpayer could hold the belief that their tax affairs were in order. For example

A Higher Rate taxpayer changes employment but earns roughly the same salary

Their new employer operates PAYE but only operates Basic Rate code (correctly)

HMRC are informed but do not act upon the information

The arrears build up over a number of tax years

The substantial difference between Higher Rate and Basic Rate should lead the taxpayer to question why the net pay has increased for the new employment and why the code has changed. Other factors may be considered but it would not be reasonable for this taxpayer to hold the belief that tax deductions were being correctly made.

However, what might be a substantial sum to the above taxpayer or the average taxpayer may be less so to a wealthy individual with several sources of income and gains.

What information had been given to the taxpayer?

The reviewing officer should consider what information has been given to the taxpayer over the relevant period, for example

  • Notices of coding
  • Explanatory leaflets
  • Letters
  • Reminders
  • Phone calls

We would expect taxpayers to read and where necessary, act on information we send them. The fact that they might claim not to have understood the information is not, in itself, an excuse that they couldn’t have reasonably have believed their affairs were in order.

Have HMRC given any misleading information to the taxpayer?

One piece of wrong advice may be misleading enough for the taxpayer to hold the belief everything is alright. For example, confirmation that their tax code was correct, and then belatedly discovering that it was not.

In these circumstances, or where the taxpayer has been advised more than once that nothing was wrong, it will be difficult to resist a claim that the reasonable belief test has been satisfied.

Have HMRC actions caused the case to become muddled or hard to follow?

It is not normally enough that a taxpayer’s affairs might be complex anyway but if HMRC actions result in for example

  • Numerous codes being issued
  • Incorrect codes being issued
  • Incorrect information being sent out

the reviewing officer should consider the taxpayers view at the time that HMRC were correctly sending information.

Professional representation

If the taxpayer has been professionally represented during the build up of the arrears then it will be harder to claim that the reasonable belief test is satisfied, because HMRC would expect an agent to spot failures or errors more readily and raise these on the taxpayer’s behalf.

Reasonable belief may change over time

Reasonable belief may change over time where there are underpayments of tax covering a number of years. For instance, an incorrect code may continue without change beyond the point where it is reasonable for a taxpayer to believe that their tax affairs are in order. Another example would be where an event occurs during the build up of the arrears which you consider should have changed the taxpayer’s belief.

You should look at the facts and circumstances for each tax year and make a judgement as to whether the tax underpayments should be given up. This may lead to some tax year arrears being collected and some being given up.

The taxpayer’s likely level of understanding of tax

This is a matter of judgement and the reviewing officer will need to reach a decision taking into account all the surrounding factors. The reviewing officer should consider

  • Background
  • Age
  • How previous deductions of tax may have been made
  • The taxpayers state of health, if it has been referred to in correspondence

Claims by the taxpayer that they were too busy or otherwise preoccupied to pay full attention to their tax affairs are not to be taken account of.

Benefit of the doubt

The reviewing officer should seek any further information to enable full and proper consideration of reasonable belief before reaching a decision. If the issue is so finely balanced that it is hard to form a judgement, always give the taxpayer the benefit of the doubt.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)