Not for the first time in my professional career, Her Majesty’s Revenue and Customs appear, in my humble view, to have failed the trust test. I do not wish to make any false accusations, so I will use words such as “may” and “appear”, and will leave it to the reader to consider the evidence. The irony though, is that HMRC is an organ of government, yet there seems to be evidence that it is not averse to pulling the odd fast one, however much it may bleat about nasty taxpayers who are happy to use the law to avoid tax.
Today I saw a new notice of coding for a client. This client, like most entrepreneurs, has a salary from his company and pays out excess profits, if any, by dividend. He has been doing so for some years – most years he pays a dividend. Some years he has not made enough profit to do so. Each year, he files a tax return which takes account of his employment income, other bits and pieces and his dividends. He has to make payments on account each year in accordance with the rules for self assessment. I doubt anyone will find this unusual.
This year, HMRC decided to include an assumed level of dividend income in his notice of coding, such that, it would seem to my eyes, he is having to make payments on account for his dividend income, and in addition, HMRC are collecting tax on the same dividend income through PAYE. The concept is that HMRC is using a payroll tool intended for employment income to attempt to accelerate the collection of non-payroll taxes, which it does not even know are due – and may not be.
In a world where HMRC are given powers to take money from people’s bank accounts, and issue – without a care in the world – accelerated payment notices when it has not proved its case, here is a stark warning. The pendulum has swung too far in favour of government and needs to be brought back. We need to know that when everything is dealt with on-line, government will not be using its new tools to, shall we say, extract money unfairly from its citizens.
Let me tell you a story…
In 1997, when self-assessment was introduced in the UK, HMRC replaced its computer systems. Many of my clients and staff received notices of coding to collect around £100 from previous years which had apparently been underpaid. On investigation, each case I saw of this was an error. No assessment had been raised. HMRC could not usually tell me what the charge was about because it was “brought across from the old system”.
Most people will not have noticed. Others will have thought it all too small to worry about and would at best raise a question and accept the answer. Others would just assume that HMRC were bound to be correct. It was reversed in each case I had of this. Was it a deliberate cynical theft of people’s money by government? I do not know, and I would hate to think it was. Though I do wonder how much money the government raised from incorrect notices of coding. This latest matter is definitely cynical.
I would recommend that, if you see dividends on your notice of coding, you should refer it to your accountant and they may well object to it on the grounds that dividends are not known until after the event and are not subject to PAYE but are taxed under self-assessment. It’s all about cash flow, and government wants our money. It’s all about trust, isn’t it?