Extra-statutory Concession

I acted for a client several years ago, when he was self-employed, but the business terminated and he then commenced employment with a large local authority employer, and was employed by them up to May 2006.  At that point, he was medically retired, and thereafter received a pension from his former employer (upon being presented with form P46 in relation to that employment pension, he correctly indicated thereon that he had no other taxable employment Income).  A few weeks later, he started to receive Incapacity Benefit and duly notified jobcentreplus of his employment pension Income.  In subsequent years, he has, upon request, supplied jobcentreplus with details of his employment pension Income.  Having not acted for him for many years, I was approached by him two months ago to advise of his having received, from HMRC, Tax Calculations for 2008/2009 and 2009/2010 (approximately £700 payable for each year) and that, upon enquiry with HMRC, he established that this £1,400 related of course to the Incapacity Benefit, which HMRC then contended he had omitted to declare to them.  He had assumed that, having notified jobcentreplus of his employment pension (and since the amount of that employment pension Income impacted upon his Incapacity Benefit) he was paying the correct amount of tax (the PAYE Coding on his employment pension was the basic Personal Allowance).  HMRC then advised him that, on the purported grounds that there was insufficient income to collect the £1,400 through PAYE Codings, Self Assessment Tax Returns would have to be submitted for 2008/2009 and 2009/2010, upon which he would need to contact HMRC again to agree payment terms (the total annual current income, from the employment pension and Incapacity Benefit, is approximately £10,400).


The Incapacity Benefit will have been, so I understand, tax-free for the first six months up to November 2006.


My view is that the established Concession should “take care of” the 2008/2009 under-payment, albeit HMRC may continue to contend that he failed to notify them of the taxable Incapacity Benefit Income – my response to such contention would be that, for all tax years from 2006/2007 onwards, forms P60 have been issued in respect of both sources of income, and the corresponding information will thus have been received by HMRC.


The “downside risk” to making an issue of matters with HMRC is that they might issue Tax Calculations (and then no doubt also Self Assessment Tax Returns) for 2006/2007 and 2007/2008 [the potential tax payable for those two years being approximately £900, allthough of course HMRC might later seek to collect tax for those two earlier years in any event].


Correspondents’ views would be appreciated - one small matter which I would especially appreciate views upon is how jobcentreplus would have established what PAYE Coding to apply to the Incapacity Benefit from November 2006 onwards.