It's because the country is broke that the taxman is going after every penny, even when it isn't theirs. My tax code came through with £9000 Benefit In Kind liability for my company car.
I know I drive nice cars for my job, but they aren't THAT nice!!!
But can I get it fixed? Can I hell.

And don't even get me started on Working/Family Tax Credits - that is one majorly fucked up system that no sane person could ever design, implement or make work - no matter how many people or other resources you throw at it.

In your case I'd involve your local MP now and maybe talk to the local paper - "military hero being mistreated by the bureaucracy that this government has created" should go down well.