HMRC ‘one to many’ letters target employment income discrepancies

HMRC are targeting discrepancies between individuals’ 2019/20 self-assessment tax returns and employers’ year-end submissions.

HMRC is targeting discrepancies between individuals’ 2019/20 self-assessment tax.....

Each year employers provide details of employees’ taxable pay and benefits to HMRC. This is also given to employees in their forms P60 (income tax and NIC paid on employment income) and P11D (benefits in kind). HMRC are currently sending standard ‘one to many’ letters to individuals whose self-assessment tax returns for 2019/20 do not appear to include all the employment income and/or benefits reported by their employer. These letters may be prompted by errors in the self-assessment return or, potentially, in the employer’s reporting. However, there can be valid reasons for differences between the amounts included in an individual’s P60 and/or P11D and the amounts reported as taxable in their tax returns. This article considers what individuals who receive a letter – and their employers – should consider.

HMRC’s compliance campaign

HMRC have recently started issuing ‘one to many’ letters to individuals whose 2019/20 self-assessment tax returns do not appear to include all the employment income and benefits in kind included in their forms P60 and P11D.

These are not formal HMRC enquiries. Rather, they are standard letters which ask recipients to review their self-assessment returns and correct any errors identified. However, we are aware that some parts of HMRC have recently issued discovery assessments, bringing additional tax into charge for earlier years in respect of perceived discrepancies between self-assessment returns and employer year-end reporting, rather than issue the informal ‘one to many’ letter and request confirmation that the position is correct.

Why might the amounts reported differ?

There are several reasons why employment income and benefits reported by an employer and included in the P60 and P11D could differ from the amounts reported as taxable in an employee’s self-assessment return.

There may, of course, be an error. For example, the employee might mistakenly omit a benefit in kind reported on their P11D, or they might purposefully omit a benefit they did not actually receive, but which their employer included in the P11D in error.

However, there can be valid differences between amounts included in an employer’s year-end reporting and those reported as taxable by the employee in their personal tax return, particularly for internationally mobile employees.

For example, an individual might have claimed double tax relief in their return in respect of an amount which had initially been subjected to PAYE by the employer. Additionally, a tax equalized assignee to the UK might have claimed a relief through their self-assessment return which changes the associated ‘gross-up’, such that the amount processed through payroll is higher than the amount ultimately subject to UK income tax.

What should individuals do?

Individuals who receive a letter should review their relevant tax return, P60 and P11D.

Where genuine discrepancies between the employment income or benefits reported are identified, these should be disclosed to HMRC and the outstanding income tax, together with any interest due, paid.

If there are in fact no errors in the self-assessment tax return (e.g., the taxable amounts reported are different but there are valid reasons for this), individuals should confirm this to HMRC.

Individuals who receive a discovery assessment may need to take specialist advice. Consideration should firstly be given to whether there is a genuine discrepancy. If not and all relevant information has already been reported on the tax return, questions may arise as to whether the discovery assessment is in fact valid, as HMRC have not ‘discovered’ anything that they were previously unaware of.

What should employers consider?

Individuals who receive a ‘one to many’ letter (or, potentially, a discovery assessment) may approach their employer for assistance.

For employers with a substantial population of individuals affected by similar apparent discrepancies (e.g., expatriate assignees to the UK), it may be most effective for the employer to explain valid differences between its year-end reports and its employees’ self-assessment returns to HMRC on behalf of the relevant employees, or to provide them with suggested wording to discuss with their personal tax advisers for inclusion in their response to HMRC.

In all cases, where employees draw such letters to the employer’s attention, the employer should ensure its reporting is correct and, if not, investigate how the error arose, take corrective action to prevent recurrence and, where appropriate, disclose any relevant errors and settle any outstanding employment tax liabilities with HMRC.