Special Report

Dealing with HMRC

It’s essential to have a basic understanding of how our highly idiosyncratic national tax levying authority – HM Revenue & Customs (HMRC) – works, in order to get on well in today’s tax environment.  In this Tax Planning Special Report I’ll be looking at ways to work with HMRC (rather than against them), and the important things you need to do to stay out of trouble.  If you’re unlucky enough to have attracted their attention in the form of an enquiry into your affairs, that’s a different matter.  You need TPSR no. 11, which helps you protect yourself in the event of an investigation. 

How are HMRC organised?  Resisting the temptation to give a sarcastic answer to this question, I would say that, apart from specialist departments which deal with non mainstream taxes such as Inheritance Tax and Stamp Duties, the important dividing line to grasp is that between self-assessment and PAYE. 

A substantial majority of taxpayers in this country have their tax deducted under the Pay As you Earn (sometimes referred to as “pay all you earn” or “pay before you earn”) system, and generally speaking the tax affairs of such people are straightforward.  So, there’s no need for someone on PAYE, generally speaking, to complete an annual self-assessment tax return unless they have other sources of income which aren’t taxed at source, or they are higher rate income taxpayers.

HMRC’s concentration, with regard to PAYE, is all on the employer.  By contrast, for those of us who have to prepare self-assessment tax returns, their concentration is all on the individual or corporate taxpayer.  Almost by definition, the target readership of this book are going to fall into the self-assessment category, because trading businesses and substantial investment activities fall outside the neat and easy PAYE tax collection method.