Further to the ESC A19 stuff.
Anecdotally, the response sent by HMRC may be a fairly automatic letter stating that you just have to pay. Look into the appeal process and keep writing - don't accept the first response unless you want to. Use the rules and interpret them pedantically.
In composing your letters, keep them calm and factual - no opinions about the state of the tax affairs or the department administering them - straight facts only.
I'm not trying to teach anyone how to suck eggs with this advice, so hopefully it doesn't come over that way. The reason I am saying this is that I work for a government department (not HMRC!!!) and know the way we handle letters like this.
What I mean is illustrated below - this is the (sanitised) letter I first sent to HMRC.
HM Inspector of Taxes
Pay as You Earn and Self Assessment
Ty Glas
Llanishen
Cardiff
CF14 5YA
Tax Reference: XXXX/XXXXXXXX
National Insurance Number: XX XX XX XX X
Reference: P800T dated XX February 2011
Thank you for sending the above document. I telephoned on XX March 2011 to query this request for the payment of £2XXX.XX and spoke to a lady called Jenny at your call centre, who explained why it had been generated, informing me that this was due to my annual Personal Allowance being applied twice (once against my work salary and again from my Armed Forces pension).
In accordance with Section 3 of the P800 Flyer that was also sent to me, I believe the incorrect deductions to be errors made by HM Revenue and Customs (HMRC), for which I should not be blamed in any way, or have to pay financially for.
My reasoning for this is that each year, I receive a Pension Scheme Newsletter from the Service Personnel and Veterans Agency. I enclose copies of the relevant pages of the 2008 & 2009 Newsletters, highlighting a statement clearly given in both, that;
“Her Majesty’s Revenue and Customs (HMRC) tells Xafinity Paymaster
how much tax to take from your pension.”
This very clear statement of fact indicates to me that if the incorrect amount of tax has been deducted, the fault lays with HMRC alone, and appears simply to be an error made by your department. The statement is clear that I personally have no input as to what rate of tax is applied, and my P60 statements do not break down the rate of tax HMRC has chosen to deduct. I have therefore had no reason to doubt that HM Revenue and Customs have been making the correct deductions.
With reference to Section 3 of the P800 Flyer, I believe that HMRC has always had the relevant information regarding my income from my salary and my Armed Forces Pension, and that HMRC have made the error in applying the Personal Allowance twice.
I request that my liability to pay this uncollected tax is waived, and look forward to your reply.
Yours faithfully,
XXXX XXXXXXXXX