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28 Jan 2010
As if the mad dash to the 31 January self-assessment filing deadline isn’t enough to keep advisers and their clients on their toes, it appears that employees’ tax affairs are set to get a lot more complicated.
The taxman has issued a whopping 25 million PAYE tax codes for 2010/2011, double that of the previous year and of which a significant proportion are wrong, according to a claim by the Chartered Institute of Taxation.
The rise in codes has come as HMRC moves onto a new computer system.
Andrew Hubbard, president of the CIoT, warned advisers and their business clients to check their new codes. “Most people on PAYE are used to assuming that what the taxman sends them is correct, [filing] away coding notices without bothering to check them.
“This year, many of them are being given wrong information, and unless they spot it and tell HMRC, their employer will receive the wrong information too and the employee could get a nasty shock when they open their April pay packet and see it is as much as £100 lighter than they expected.
Richard Mannion, director of national tax at Smith & Williamson, said that HMRC’s previous system had suffered problems in the past. “They’ve now installed a new system, which is more flexible, but there have been teething problems.”
He said that the mistake was likely to significantly affect pensioners with part-time jobs or people who hold down more than one job, as the system was likely to generate a different tax code notice per job.
People with investment income, says Matt Coward, director of private client services at PKF, could also be affected by incorrect codes. “[HMRC might] try to collect tax due on an individuals’ estimated investment income – bank interest, dividends, rental income – through their tax code.
In many cases, that estimate of investment income will be based on previous
tax returns, and may well be excessive and out of date,” he said.
So what would be the potential scale of loss to an individual from a wrong tax
code?
Mannion said it could be a “couple of hundred pounds lost” but observes that for higher earners it could be “significantly more”.
Both said that the best advice was to check the tax code and contact HMRC if it needs to be changed. “Anyone under PAYE needs to make sure they understand what their tax code means,” said Mannion. “Take a little bit of responsibility: make sure you have the right tax code.”
A HMRC spokesperson insisted that “the new system is working as it should” and added: “As part of our transition to this new system, in this first year, we also expect some of the codes we issue to be incorrect. Anyone in this position should call HMRC to make sure the right tax code is applied.”
In our view
So advisers looking after private clients with employment should see the obvious here: make sure they’ve got the right code. Perhaps accountants should also step up to the plate and help a business client make sure its staff are paying the right tax. FDs, do you feel a responsibility to help your staff out? Of course, it would help if HMRC got things right in the first place.
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Visitor comments Add your comment
Anyone held to account?
The arrogance of virtually all parts of this government is breathtaking. To quote, "A HMRC spokesperson insisted that ?the new system is working as it should? and added: ?As part of our transition to this new system, in this first year, we also expect some of the codes we issue to be incorrect."
This is outrageous. I note the omission of the word "sorry" from any comment from HMRC and clearly the lack of any procedures to spot mistakes. At a basic level someone must have noticed that they needed an extra 12 million envelopes? You can't just go the stationery cupboard and pull out 12 million envelopes.
If these errors had been the other way round (i.e. on the part of the taxpayer) doubtless high level penalties would have been sought for negligence. Furthermore the abject failure of a system such as this on the part of the taxpayer would mean having to qualify the Senior Accounting Officer certificate. Perhaps we should have a Senior Accounting Officer sign off for HMRC and failures such as this could attract a penalty on Dave Hartnett?
In my own case having had a simple code (personal allowances - nothing else) for the last 4 years, my coding notice has turned up with P11D and investment income details from 2005!! It also included an amount to recover a four figure tax sum from 2005 (which, incidentally they got wrong the first time too) which is described as having "been discussed with you". An unrepresented taxpayer could be in a real pickle over this, completely unnecessarily and not their fault. Another fiasco of "child benefit" proportions and they have the cheek to call me a "customer" - can I please go and shop with the Singapore fisc?
Posted by: Winston Smith, 28 Jan 2010 | 00:00
Integrity ?
Of course the system is working as it was intended. The notices are incorrect on purpose, the Idea being to scam taxpayers. This is just the latest (error) that moves tax codes around to collect more tax or collect it earlier. Arrogance indeed !
Posted by: Spike, 28 Jan 2010 | 00:00
Unrepresented Taxpayers
The real scandal here is that the average taxpayer has no hope of understanding the coding notice and will therefore not have any idea whether it is right or wrong.
Posted by: Jim Etherton, 29 Jan 2010 | 00:00
Urgent Action Needed
The fact HMRC are now only allowing repayment claims for the previous 4 and not 6 years makes action even more urgent. Most repayments arise because of wrong Tax Codes. I agree with comments already posted that the majority of tax payers do not understand their tax position or rights. yet they are expected to file an annual Tax Return with all its complications! Most are left 'out in the cold' because they cannot afford an agent to do it all for them. The amount of tax overpaid to HMRC over the years must be staggering - this cannot be right! Still, they can always turn to Moira Stewart for help because, as she says, 'tax doesn't having to be taxing'.
Posted by: K J Stones FCCA FCMI, 30 Jan 2010 | 00:00
Lack of Knowledge
I am a Payroll manager and I find it very frustrating when employees come to me with tax code changes that are completely wrong. They rightly so ring HMRC to be told it is based on, and I quote, "information given to us by your employer"!!!!
Well excuse me, but in 95% of the cases, it is not the information the employer has given. We have come across missing benefits, when the benefit was clearly on the previous P11d, and we have sent nothing to HMRC as there have been no changes, but mysteriously the benefit has since dropped off or been added to a new coding notice.
When are HMRC going to employ people who know at least a little bit about tax & NI, and stop using the its your employer excuse!!!!
HMRC - hold your hands up and say its our fault we are sorry it is incorrect. I think the word sorry has been dropped from the dictionary used by HMRC!!!
Posted by: Diane, 10 Feb 2010 | 00:00