HMRC Dubs Innocent Taxpayers As Cheats

New HM Revenue & Customs (HMRC) financial profiling technology is sending out letters to taxpayers warning them to check their tax returns for errors because they are suspected of cheating the system by paying less tax than expected.

HMRC also threatens that if the tax returns contain errors, the taxpayers could face hefty fines and penalties.

However, tax specialists have discovered that around 1,000 letters have been sent and nearly all the information HMRC needs to check the information is correct is already detailed on the return.

Tax consultants Baker Tilly is accusing HMRC of trying to bully people into paying more tax unnecessarily – and causing stress and wasting time for innocent taxpayers.

The problem is the HMRC financial profile software which identifies people who are paying less than average tax on their income.

Spurious demands

“The computer has sent out spurious letters to anyone marginally outside the parameters and no one has checked their tax returns to see if the figures are correct,” said Mike Down, of Baker Tilly.

The firm put forward some cases that had recently come under the HMRC spotlight –

  • An elderly widow donates more than half her annual income to charity under the Gift Aid scheme, which lawfully reduces her marginal rate of income tax rate
  • A property owner sold two homes, but paid a reduced amount of capital gains tax on the profits because he had lived in both properties at one time or another, allowing him to claim principle private residence relief to minimise the amount of tax paid

“The letter says HMRC has looked at individual tax returns and considers the amount of tax paid is too low for the income or gain reported,” said Down. “But in the cases we have seen, the tax returns were correct.

No action needed

“These letters are worrying for some people and HMRC should be working with people over issues like this instead of resorting to bullying them.”

HMRC countered that the letters were a trial to help sort out mistakes taxpayers may have made on their returns.

A spokesman explained only around 1,000 letters had been sent to top rate taxpayers, who earn more than £150,000 a year paying income tax at a rate of no more than 22% when they are expected to pay at a rate of 45%.

“Taxpayers only have to take action if they believe they have made a mistake on their tax return,” said the spokesman.

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