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2016/2017 tax coding

2016/2017 tax coding

A client has just sent me a copy of their 2016/17 tax code and I had my own a week or so back.

Within the tax code for next year is a deduction for dividend tax. Presumably this is because the dividends will become taxable from April however I foresee this causing a few issues in that it assumes the dividends for next year will be the same as this year.

Also this will mean that one man bands who currently have no tax liabilities under a low salary scheme who pay tax through their self assessment at the end of the year will now have to pay tax on a monthly basis.

Has anyone else received a tax coding notice like this and had any success in having it changed so the tax is paid as part of self assessment and not PAYE?

many thanks

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By cohen
18th Feb 2016 20:36

Hi

Yes, if the client would prefer to pay via SA, or the adjustment isn't relevant, i've asked HMRC to remove the adjustment without any problem.

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By PALacc
18th Feb 2016 21:36

That's great thank you for confirming.

For myself I don't mind as I may as well pay some as I go along but I'm not sure it would work well that way for all clients.

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18th Feb 2016 23:54

Put the matter beyond doubt in future by ticking the box on the tax return to deny HMRC the option to collect dividend tax through PAYE (unless you want it).

Saved as a text string.  I can see myself pasting it into threads here well into the summer.

With kind regards

Clint Westwood.

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19th Feb 2016 09:56

Clever idea to collect tax early

nogammonsinanundoubledgame wrote:

Put the matter beyond doubt in future by ticking the box on the tax return to deny HMRC the option to collect dividend tax through PAYE (unless you want it).

With kind regardshe s

Clint Westwood.

 

That won't stop HMRC trying it on. I handled a similar situation were the client never pays his extra tax through the PAYE code. The HMRC agents hotline claimed they didn't know why it had been done and are getting a lot of similar calls from accountants.

If this carries on there will be a lot of repayment claims  

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19th Feb 2016 11:17

Double check?

bernard michael wrote:

That won't stop HMRC trying it on. I handled a similar situation were the client never pays his extra tax through the PAYE code.

And yet, I have never yet had an example were HMRC has failed to respect a cross entered in box 3, page TR6, form SA100.  Given the level of automation I would be surprised otherwise.  Clearly our experiences differ, but humour me:  Whatever that client has done in the past, would you just check that he did cross that box in the 2014-15 return, and report back your findings?
 I wonder whether it might make a difference when the return was filed, and whether online or by paper.  It shouldn't, although a paper return could be subject to human error in capturing.

With kind regards

Clint Westwood

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By cbp99
19th Feb 2016 11:42

Box 3 page TR6

This box refers to the "current" tax year, ie for 14-15 returns, to the year ending 5 April 2016.

The coding notices currently being issued are for year 2016-17.

And the box does not refer to tax on dividends, only to savings, casual earnings and HICBC,

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By PALacc
19th Feb 2016 11:46

Yes that's what I was thinking. The tax code is for use in that year to deduct that for that years earnings not tax from the previous year.

I am going to give HMRC a call on monday to see if this can be changed. I think its a little sneaky really because dividends are dependent on profits so what might be a good year this year might not be a good year next year but yet tax will be suffered on a month by month basis making cash flow potentially more harmful. HMRC are getting their ££ a lot sooner than they would normally.

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19th Feb 2016 11:42

I've checked

I use Taxcalc, which asks the following question re outstanding Tax

As the liability is less than £3000, HMRC can collect this through your 2016-17 PAYE code (if you have one) if you would prefer this, please remove the tick.

The tick was put in on the 2014-15 return submitted on line and is still in place on the system

Odd

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By cbp99
19th Feb 2016 12:02

Box2

bernard michael wrote:

I use Taxcalc, which asks the following question re outstanding Tax

As the liability is less than £3000, HMRC can collect this through your 2016-17 PAYE code (if you have one) if you would prefer this, please remove the tick.

The tick was put in on the 2014-15 return submitted on line and is still in place on the system

Odd

I think you are referring to box 2 on page TR6, which is about collection of 14-15 tax.

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19th Feb 2016 11:59

Some of you are confusing box 2 with box 3

Never mind your software, look at the return itself - or a PDF copy.

There are (among others) two boxes on that page. Box 2 and Box 3. Your software should provide two questions, to enable you to select each independently of the other. The reference for example to the £3K limit is referring to box 2.

If you look at the wording on box 3 of the 2014-15 return it says

"We will try to collect tax due for the current tax year (ended 5 April 2016) through your wages or pension during this tax year. ...... If you do NOT want us to do this then put 'X' in the box"

That seems pretty clear to me.  I think that some of you are just ticking box 2., but it is the omission of the tick in box 3 that is causing these codes.

With kind regards

Clint Westwood

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By cbp99
19th Feb 2016 12:06

.

nogammonsinanundoubledgame wrote:

Never mind your software, look at the return itself - or a PDF copy.

There are (among others) two boxes on that page. Box 2 and Box 3. Your software should provide two questions, to enable you to select each independently of the other. The reference for example to the £3K limit is referring to box 2.

If you look at the wording on box 3 of the 2014-15 return it says

"We will try to collect tax due for the current tax year (ended 5 April 2016) through your wages or pension during this tax year. ...... If you do NOT want us to do this then put 'X' in the box"

That seems pretty clear to me.  I think that some of you are just ticking box 2., but it is the omission of the tick in box 3 that is causing these codes.

With kind regards

Clint Westwood

I was too slow with my post "Box2".- but I am not confusing it with box 3.

I don't see either of the boxes having anything to do with tax liabilities which may arise in year 2016-17.

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19th Feb 2016 12:14

ongoing effect

cbp99 wrote:

I was too slow with my post "Box2".- but I am not confusing it with box 3.

I don't see either of the boxes having anything to do with tax liabilities which may arise in year 2016-17.

Yes I am certain that *you* "get it".

In the absence of an explicit choice made by the taxpayer for 2016-17, HMRC have to make an assumption at the point of issuing the code, concerning the taxpayer's most likely preference.  I do not think it unreasonable of them to assume that an explicit choice made in respect of 2015-16 should have ongoing annual effect until revoked.

Whatever, my advice is to tick box 3 if you don't want it to happen, and my experience is that this advice is effective, whatever the design or guidance notes state.  Just passing that on, is all.

With kind regards

Clint Westwood

 

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19th Feb 2016 14:52

Caveats

[quote=nogammonsinanundoubledgame]

Never mind your software, look at the return itself - or a PDF copy.

There are (among others) two boxes on that page. Box 2 and Box 3. Your software should provide two questions, to enable you to select each independently of the other. The reference for example to the £3K limit is referring to box 2.

If you look at the wording on box 3 of the 2014-15 return it says

"We will try to collect tax due for the current tax year (ended 5 April 2016) through your wages or pension during this tax year. ...... If you do NOT want us to do this then put 'X' in the box"

That seems pretty clear to me.  I think that some of you are just ticking box 2., but it is the omission of the tick in box 3 that is causing these codes.

With kind regards

Clint Westwood

For box 2 the software says

If you are likely to owe tax for 2015-16 on income OTHER THAN employed earnings or pensions, and you do not want HMRC to use your 2015-16 PAYE tax code to collect that tax during the year, please tick this box.  Note: If you want HMRC to adjust your PAYE code, you must file your return by:31 October 2015 for paper returns30 December 2015 for online returnsIf you are filing after this date, the tax is payable as a lump sum by 31 January 2016.

 

Caveats

!. He doesn't believe he will owe tax

2, The return was filed 5th January

Therefore box 2 was not ticked

 

 

 

 

 

 

 

 

 

 

 

 

 

f you are likely to owe tax for 2015-16 on income OTHER THAN employed earnings or pensions, and you do not want HMRC to use your 2015-16 PAYE tax code to collect that tax during the year, please tick this box. NotesHelp

Note: If you want HMRC to adjust your PAYE code, you must file your return by:31 October 2015 for paper returns30 December 2015 for online returns

If you are filing after this date, the tax is payable as a lump sum by 31 January 2016.ote]

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19th Feb 2016 15:47

Software flaw?

bernard michael wrote:

For box 2 the software says

If you are likely to owe tax for 2015-16 on income OTHER THAN employed earnings or pensions, and you do not want HMRC to use your 2015-16 PAYE tax code to collect that tax during the year, please tick this box.

Then quite simply, your software is wrong.  That narrative refers to box 3, not box 2.
I find it hard to believe that your software is wrong, but I take what you say at face value.

Bernard Michael wrote:

Caveats

!. He doesn't believe he will owe tax

2, The return was filed 5th January

Therefore box 2 was not ticked

This does not help one way or the other, as it is box 3, not box 2, that affects the issue, and the only point of relevance is whether box 3 was ticked, which point you have not yet clarified.  Are you unable to generate a PDF copy of the tax return from your software, to prevent your having to rely on the software prompts and instead view the definitive document?

The question of "whether you are likely to owe tax" is an objective test, not a subjective one. Your client may not expect there to be a liability next year, based on information to which perhaps only he is privy, but whether HMRC would arrive at the same conclusion based on information available to them (ie the last tax return, which may show dividends exceeding £5K) is another matter. Objectively, on the information available to *them*, and *if* given permission by the taxpayer on box 3 (not box 2) to exercise their judgement on the matter, the resulting code should not come as a surprise.

Box 3 is a peculiar hybrid sort of question, that serves two purposes. On the one hand ticking the box denies HMRC the discretion to collect investment income tax through PAYE, but also it includes a declaration of an expectation that there will be such amounts arising. Accordingly it has the dual purpose of inhibiting the tax code and also triggering the issue of a tax return for the following year. Thus, if you fit the criteria, and desire, to come off the self assessment treadmill, then you have to leave that box UN-ticked, but then if they play silly buggers with the PAYE code you will have to phone them up to reverse it.

This also means, that if you personally think that there will be no such income arising, but you are content to complete the tax return next year, and your higher priority is to prevent PAYE coding restriction, then you should be ticking box 3 despite your income expectations.

With kind regards

Clint Westwood

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By JAADAMS
19th Feb 2016 12:03

You can always resubmit the 'incorrect' Tax returns...

with the box ticked

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19th Feb 2016 12:31

cbp99 makes a good point: the wording on the face of the return does not expressly list dividends as a relevant income source (contrasted with savings, casual earnings and/or HICB).

Nevertheless the practical application of the box has always historically been used to justify collection of (eg) rental income and estimated HR tax on dividends. The only major change this time around is that there will be a lot liabilities on dividends for individuals who have historically, and will remain, BR taxpayers. In the past, leaving box 3 un-ticked may well have had no effect. No longer.

In fairness to HMRC, the notes on the face of the tax return against box 3 do end with "read the guide". And the guide also includes tax on "investments", which technically include income from shares.

With kind regards

Clint Westwood

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By cbp99
19th Feb 2016 12:21

Another point about these coding notices is that they refer to income that does not yet - and might never - exist, and a tax that is not yet on the statute book.

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19th Feb 2016 12:33

PAYE has only ever been an estimate.

HMRC are happy to estimate next year's medical insurance benefit, even though it may never happen.

I do remember a glitch about a year or two ago when HMRC enthusiastically started estimating some of our clients' total income to be about £140K when they have never shown more than £30K.  That seems to have fizzled out now, at least.

Anyway, just tick the damned box.

With kind regards

Clint Westwood

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By cbp99
19th Feb 2016 12:41

.

We always (where appropriate) tick the damned box, but clients are still receiving the incorrect damned notices!

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19th Feb 2016 16:08

Clint unfortunately we are talking at cross purposes

The software has 2 questions relating to paying tax by PAYE

Q1 software relates to Q2 on the return

Q2 software relates ro Q3 on the return 

Q1 on the return is answered elsewere in the software

The client did not tick Q2 software

 

The caveats still apply from my previous answer

 

 

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19th Feb 2016 16:58

OK we are getting somewhere

Heh. All becomes clear

Whatever the guidance notes state, on the tax return or in the supporting backup notes, and however worded, the effect of box 3 on the return (box 2 in your software), is thus:

By ticking (or crossing) the box you are declaring

(1) You expect to have untaxed income next year (so please issue a tax return)
****AND****
(2) You deny HMRC the discretion to collect any tax on said income by PAYE.

Logically, each of these two statements has an opposite counterpart, leading potentially to 4 possible outcomes, given full choices on each statement independently of the other. However you only get two choices: Tick the box or not.

As I say, ticking the box, has the above effect. NOT ticking the box has the effect of declaring

(1) You do not expect to have untaxed income next year,
***OR***
(2) HMRC can do what they want with the PAYE code.

You say that you left the box un-ticked. It is this choice that resulted in the restricted PAYE code, where had it been ticked this would have been suppressed. Furthermore, it is an annual choice and can be changed annually, so your earlier comment that he has "always" paid by cheque is not relevant, as it is only the choice that he made on the 2014-15 tax return that counts.

With kind regards

Clint Westwood

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20th Feb 2016 10:39

HMRC are ranking with one of the silly legal questions put by a defence barrister in a theft trial

"Do you recall when did you stop stealing these items". Even the judge laughed

However

Surely the ticking or not ticking of the box is trumped by the filing date being after 31st December thereby denying HMRC the ability to utilise the tax code

Also the event which may give rise to untaxed income is caused by the possible future event of having dividends or not ie a back to the future situation

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20th Feb 2016 15:54

I have some sympathy

I have sympathy with those who find the guidance to box 3 confusing.

I have a lot of sympathy if HMRC on occasion act inconsistently in applying their response to the box 3 entry.

But I don't really have much sympathy with those who, given the way that box 3 works, and having left the box un-ticked, object on principle to a PAYE coding restriction for dividend income on the grounds that it is a matter of speculation whether they will receive any dividends next year when they have received £20K dividends each and every year for the last 10 years.

Particularly so when HMRC will adjust the dividends to the taxpayer's own estimate on the basis of a simple phone call.

Any adjustment to a PAYE code is based on speculative estimates and assumptions about how the income sources and amounts will pan out over the course of the coming year.

Believe it or not, there are some taxpayers who prefer to pay their tax on the drip throughout the year.  Would you deny them that option?

As to the 31 Dec deadline, I think that it is 30 December.  And the reason for it is to enable HMRC time to adjust in-year PAYE codes and identify the correct amount payable on 31 January a month later, neither of which points are relevant to the following year's code. But if it is filed too late for this purpose, perhaps HMRC should look to the previous tax return to identify the taxpayer's preference, and if box 3 is un-ticked (also) in that year, then go by that preference.

The guidance notes in page TRG10 are a bit ambiguous, but there are some indications that the 30 Dec deadline only refers to the application of the taxpayer's choice in respect of box 2 (your software Q1) and not box 3 at all.

With kind regards

Clint Westwood

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21st Feb 2016 10:43

You're right Clint it is the 30th not the 31st but still too late

The client I refer to has always paid any tax due in a lump and not via the tax code When you say that perhaps HMRC should look at previous years if the return is filed after 30th December surely you're not advocating them ignoring returns and deciding off their own bat what they want to do. Anarchy would prevail

To repeat this (amending tax code) has not occurred with the client in previous years so perhaps the rteurn questions need altering to become clearer in view of the new dididend regime

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21st Feb 2016 17:19

Indeed

bernard michael wrote:

surely you're not advocating them ignoring returns and deciding off their own bat what they want to do.


You are right.  I am not.

With kind regards

Clint Westwood

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21st Feb 2016 11:56

Fuss

People make a lot of fuss about tax codes but it's just about paying as you go or paying later.

Some people like coding restrictions, some don't.  But, either way, I'd never go to a huge amount of trouble to change some trivial restriction.   And the client needs to know that - and ask himself how much is involved ?  What are my accountant's fees for altering it ?   Am I really that bothered ? If I am, why am I bothered ? Am I going to be struggling to pay this come January 2018 (or whatever year it happens to be) ?

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22nd Feb 2016 08:46

However but!!

lionofludesch wrote:

People make a lot of fuss about tax codes but it's just about paying as you go or paying later.

Some people like coding restrictions, some don't.  But, either way, I'd never go to a huge amount of trouble to change some trivial restriction.   And the client needs to know that - and ask himself how much is involved ?  What are my accountant's fees for altering it ?   Am I really that bothered ? If I am, why am I bothered ? Am I going to be struggling to pay this come January 2018 (or whatever year it happens to be) ?

 

The problem this thread has tried to cover is that that HMRC will be coding out tax on income that is based on dividend guesswork. It is surely wrong to assume that just because a dividend of £x was paid in one year the same amount will then be paid in the following year 

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22nd Feb 2016 09:44

Confusing principle with practical application

There is nothing new in HMRC collecting through PAYE, with the taxpayer's permission (via box 3), tax on untaxed income sources, the amounts of which are necessarily estimated in advance. Until overridden by better information, those amounts have traditionally been estimated based on historical corresponding amounts. The only thing that is new is that dividends within the BR band now form a new untaxed income source.

You have told them, by not ticking box 3, that in principle you have no objection to their collecting dividend tax through PAYE. What would you say is a more reasonable estimate: £0, because it MIGHT be £0, or (say) £20K because he has received £20K last year and in each of the previous 5 years?

You have already conceded that it is reasonable for HMRC to look at historical trends. After all it is the historical direct payment of SA tax each and every year for the last several years which you cite as the supposed justification for HMRC to be aware not to code the tax at all, disregarding box 3 which is the traditional route for notifying a preference.

HMRC have been provided with permission to collect dividend tax under PAYE. It is a permission that can be revoked, but until revoked it is reasonable of them to act on it.

Armed with that permission (some would say expressed preference), for the purpose of arriving at an initial code they look at historical dividends. Personally I say that this is the only reasonable action that they can take on the information available. HMRC having arrived at an estimate, you or the taxpayer may form an opinion that you have a better estimate. So fine. Tell them. They will be perfectly amenable to change the code and use your guesswork rather than theirs.

And if you tell them to take it out of the code altogether, then fine, they will do that as well.  But not on the basis that £0 is a better estimate, nor on the basis that their initial estimate is unreasonable, but on the grounds that you are revoking the permission for them to code it.

With kind regards

Clint Westwood

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01st Mar 2016 11:23

Ridiculous 2016/17 tax codes

I just had a client send me a copy of his code. No personal allowances (his income has always been under £100,000) and an adjustment to rate bands of £234,246. I am awaiting a written reply as to where they found that gem. It was easier to get the code changed than explain to my elderly client that he didn't have an extra £1/4m earnings coming to him!

Why do we have to waste our time dealing with this garbage? It's worse as out taxes are paying these fools to get the codes so wrong. Sometimes I think they just do it to create work, although they always blame 'the computer'.

 

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