What has gone wrong?
NPS has a ‘single view’ of each taxpayer, linking their employments where they have more than one or they overlap, hopefully resulting in more taxpayers paying the right amount of tax by the end each tax year. To do this, it needs ‘clean data’. However, it seems that, in this first year, it has picked up some former employments as well as current employments, or in some cases duplicated employments or pensions. As a result, some taxpayers’ personal allowances have been split between two ‘employments’ or ‘pensions’, and some have been allocated to a former employment or pension, leaving insufficient tax free pay for the current main employment. If left uncorrected, this would lead to too much tax being deducted from April 2010 – about £108 per month if the taxpayer is being taxed at basic rate. However, some basic rate taxpayers have been erroneously given the 40% tax rate, potentially leading to even larger overpayments.
How many coding notices are incorrect?
We do not know how many of the 25 million codes being issued will be incorrect. However, even a small percentage would be a large number of taxpayers. We expect the majority of codes to be reasonably accurate – but it is too early to quantify the errors.
What can you do?
HMRC are trying to identify the key problems and rectify them. However, CIOT members and taxpayers can also help:
1. Members in practice
You may already have had concerned clients contacting you. Now that the 31 January SA tax return deadline has passed, members in practice will no doubt be checking copies of codes sent to them. They may also want to notify their clients about the issue to ensure that codes not copied to them are also checked.
2. Check coding notices
What should you look for? It depends upon the circumstances, but here are some common telltale signs:
3. Help us help HMRC put this right
The CIOT has already identified some of the problems which seem to have occurred, and forwarded these, with the taxpayers’ permission, to HMRC to look into the underlying cause of the incorrect data feeding into NPS. The CIOT is working with HMRC to identify the causes of these errors. We are therefore collecting details of specific taxpayer cases from members and taxpayers generally. You must only supply such information to us with the permission of the taxpayer, and if the taxpayer also gives us the authority to store the information and pass it on to HMRC once analysed.
It is important to note that we are gathering this information for analysis purposes only. To get an incorrect tax code changed you will need to contact HMRC directly - see http://www.hmrc.gov.uk/incometax/coding-notice.htm
If you would like to let us have details of your own (or, in the case of a tax adviser, your client’s) case then please visit out dedicated site here.
Conclusion
The 2010/11 codes will be applied to income from April 2010, so there should be time for incorrect codes to be amended.
The CIOT will be aiming to work with HMRC over the next few weeks to identify the types of problems that have occurred, and to help them come up with some solutions so that people are on the right tax codes and not overpaying tax by the time the new tax year starts in April.
Further links:
HMRC page on: Find out more about tax codes and your PAYE Coding Notice
HMRC page on: More about income tax, tax codes and getting your tax right
HMRC’s number to call if taxpayers think they have an incorrect PAYE code: 0845 3000 627
About the CIOT
The Chartered Institute of Taxation (CIOT) is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities. The CIOT has a good working relationship with HM Revenue and Customs (HMRC) but is not itself part of government or publicly funded.
Technical Team
