Why do HMRC keep asking for more money?
Laura Arbuckle • November 8, 2019
The role of an accountant is often not as simple as preparing endless sets of accounts and tax returns, but also requires good problem-solving abilities. Here’s a simple example of how I was able to help save my client over £1,000.
Background
I was recently asked to help a new client after he was left exasperated by his previous accountant. He kept receiving demands for additional money from HMRC in respect of his 2018/19 payroll.
Having asked his previous accountant about the situation a couple of times, they still weren’t able to provide him with any answers. They tried to fix the problem but instead made it worse and by then my client had decided that he would prefer to change accountant.
He asked me to work with him and to help him solve the problem.
What was the best way to help?
Having been provided with incomplete payroll data, the first thing I did was to recreate the payroll entries that had been made previously. By understanding what had already been sent to HMRC, I was better placed to be able to work out how to fix the problem.
I used a combination of what had been sent through and what was shown on the HMRC account for the company to recreate what had been sent in. In this case I was also able to speak to HMRC regarding the individual employees so that I could get the tax codes that were used, and also confirm the tax codes that should have been used.
Once I had worked out what had been submitted before I took over the work, I was then able to work out what should have been sent in and also come up with a plan to make the necessary adjustments .
What was the problem?
I was able to identify two problems for my client.
- Only half the submissions for the year had been made for one of the employees. In trying to fix this problem, the full salary for the year had then been submitted, leaving the employee with a salary 1.5 times higher than it should have been.
- The Employment Allowance for the year had been claimed initially but was subsequently terminated, leaving the Employers National Insurance bill as an additional liability on the HMRC account.
These two problems had caused HMRC to issue demands for extra payments to my client. Armed with the knowledge of what had happened and how I could fix it, I was able to relieve my clients worries regarding these unexpected demands.
What was the fix?
Since these two problems arose in the previous tax year, a special submission called an Earlier Year Update (“EYU”) was required. These submissions are fiddly and an attempt to submit an EYU by the previous accountant had exacerbated the first problem identified above.
The easiest way to send in the EYU is by using HMRC’s own payroll software. The EYU requires you to tell software all the details that are already held by HMRC for the employee in question and then tell them what should have been sent in. The software then calculates the difference and sends that to HMRC in an attempt to fix the underlying record.
The previous accountants had instead used the EYU to send the employee’s full salary for the year, simply adding to the problem.
At the same time as sending in required EYU, I used the software to generate and send in the Employment Allowance claim again.
What was the outcome?
Having made the submissions to HMRC, I made sure that the changes flowed through to the payroll record correctly. Once the changes took effect, my client was delighted to find that the company’s PAYE bill reduced by £1,200.
It is much easier to get HMRC submissions correct the first time, but inevitably problems sometimes arise. If you think something isn’t quite right with your own tax position, you can book a discovery call using the button below to see if I can help you.
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