Whether you’re a sole trader, a limited company, or a payroll coordinator, even the smallest error with HMRC can have serious ramifications.

We all fear making a tax mistake, yet HRMC has been known to make mistakes as well. What matters most is how (and when) the error is corrected.

Does HMRC really make mistakes?

Unfortunately, certain errors are far more common than others. When it comes to preventing costly mistakes, HMRC is just like the rest of us, thus they make every effort to be open and upfront.

There is a very precise complaints process you can go through, so if they do make mistakes, you shouldn’t be out of pocket, but one thing is certain: if you underpay tax, HMRC will take action, regardless of who is to blame.

HMRC tax overpayments and underpayments

This is the most common error made by HMRC, and it can be costly to you.

HMRC will contact you to negotiate a refund if they determine that you have paid too much tax for whatever reason. HMRC will send you a second bill, called a Simple Assessment Letter (P800), if they believe you haven’t paid enough.

It’s not unheard of for HMRC to provide a tax rebate in this situation.

If HMRC does need to provide a tax refund, it’s not unheard of for the amount to be incorrect. It could be too low or too high; in either case, double-checking is your obligation.

Most HMRC errors affect firms in the areas of pay and deductions, employee starts/leave dates, employee payment dates, and National Insurance issues. Self-assessment payments and pension concerns are common problems for sole traders and individuals.

Outdated, incorrect or non-authorised PAYE tax codes.

Again, this is more aimed at businesses. Inaccuracies in employee information, such as the wrong tax code, can also lead to HMRC making a mistake.

 The trouble with PAYE

Another area where HMRC mistakes are more common is pay-as-you-earn (PAYE). It’s worth anticipating and planning as much as possible to help prevent errors before they happen.

Missing paperwork (such as a P45 from a prior employer, a P45U, or a P45ESA) or failing to declare other sources of income accurately can cause calculations to fail totally.

What happens if an employer makes a tax mistake?

Payroll may be a nuisance for organisations, and the more employees you have, the more complicated your payroll will be – and the more likely an employer will make PAYE mistakes.

If any of your employees’ information needs to be updated, they should notify you or your payroll department. It could be helpful to send them reminders to examine the data you have on hand. It’s also critical that they double-check their paystub and notify you if you overpaid them.

When an employee has numerous jobs or pensions, HMRC’s PAYE system can become confused. It isn’t very common, but it can occur.

HMRC may levy penalties on occasion, but if you can show that HMRC made a mistake, they will reverse the process. HMRC will also reimburse any money owing to the business in this scenario, usually through a reduction on the next bill. If the issue occurs between tax years, it can be fixed on the following return.

What if I receive an unexpected HMRC bill or letter?

If you receive an unexpected tax bill, whether you are an employee or self-employed, you should double-check its accuracy. Does your P45 or P60, for example, match the information on your payslip if you’re employed (or were previously employed)? Is your P11D statement accurate if you receive benefits in kind?

Check any allowances or reliefs to ensure that you are claiming them appropriately and that the calculations are correct.

Can I challenge an HMRC decision?

Yes, you can, and if you feel they’re wrong, then you should contact them – (always keep any evidence)

Challenging HMRC will then involve going through the process. HMRC are fairly well known for their transparency, but getting hold of them in the first place can be difficult and time-consuming Call waiting times can be lengthy, especially at a certain time of the year, such as around tax deadlines. If you have an accountant or another agent, get them on the case straight away.