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Tax Code Problem

Client on a six figure salary had a BR code operated for most of 2011/12 and asked me what to do.  Mindful of the large tax liability which had built up I asked HMRC to issue a 0T code for 2011/12 which they did in February 2012, applied to March 2012 payroll.

Result?  Disaster - the tax due for the month of March exceeds gross pay and the employer has deducted it in full thus creating a debt from the employee to the employer.  I had not expected this to happen, with hindsight I should have asked for a Week 1.  If it had been a K code this wouldn't have happened, so are there any regs which cover this situation, or has the employer operated the payroll absolutely correctly?

Thanks

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It sounds correct to me

In the situation described the employee's tax would correctly exceed their pay.

In practical terms it might be a good idea for someone to give the tax office a call and ask what to do?

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11th Apr 2012 14:23

There used to be a maximum tax deduction...

I am sure there used to be a maximum permitted tax deduction of 50% in any pay period - but I can't find it now, and guess this may have changed with the introduction of the 50% tax rate.

I would ring the helpline.  Are you sure it was not a m1 code?  This piece of information often does not filter through to the employee's copy.

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Maximum deduction is K codes only

taxhound wrote:

I am sure there used to be a maximum permitted tax deduction of 50% in any pay period - but I can't find it now, and guess this may have changed with the introduction of the 50% tax rate.

I would ring the helpline.  Are you sure it was not a m1 code?  This piece of information often does not filter through to the employee's copy.

 

The maximum deduction of 50% only applies to employees with K codes. So far as I am aware it does not apply in any other situation.

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11th Apr 2012 15:43

Surely this is HMRC's mistake - they should have automatically issued 0T on a month 1 basis as it represents a reduction in the code. The payroll department should have queried this before operating.

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11th Apr 2012 16:06

Negative pay

Had the same situation in January of this year and I spoke to employers helpline.  The tax code was changed to 0t m1 due to original coding causing financial hardship.  The under payment of tax is still due and I believe it was / is to be coded out in the current year, however I have not yet seen a coding to verify this.

 

Hope this helps

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12th Apr 2012 09:48

Why were they on BR?

My understanding was that this had been almost 100% replaced by 0T which is always operated on a M1/W1 basis.

Was there a code issued for BR? - Is this a new source and the employer failed to correctly put him on 0T for P46 no certificate?

Codes issued in February for the current year should normally be issued on W1/M1 basis, but it is sometimes missed.

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16th Apr 2012 14:06

HMRC unsympathetic, in my experience

I tried to help a client by getting involved in a coding issue, and HMRC was unsymathetic about the money owed. In hindsight, the best approach would have been to leave the code in place and advise the client of the tax payment that would be required through his tax return. Perhaps the least painful approach where the client owes money...(although I agree it is odd that W1M1 was not applied).

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17th Apr 2012 10:08

HMRC advised apply on a week 1 month 1 basis

Where we have had this situation before HMRC advised us to apply the code on a week 1 month 1 basis and for the employee to contact HMRC to get the code amended. I would have expected the payroll agent to check this with HMRC first and amend accordingly.

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