I am currently dealing with a PAYE underpayment case. I had always assumed that where an employee did not provide a P45 to a new employer that if a BR code was used it would automatically collect tax on earnings above the standard rate threshold at the higher rates. I am surprised to discover that the BR code only deducts standard rate tax from all earnings regardless of whether the amount is above the relevant threshold. In this case a consultant with monthly earnings in excess of 5 figures (excluding pence) each month. Being taxed at 20% on PAYE led to a very large underpayment over a three year period.
It seems such an obvious weakness in the PAYE system that I wonder why it was ever written into payroll systems in this way. Even the old manual tax tables didn't allow substantial underpayments to arise in this way.
Presumably payroll systems have to be compliant with HMRC requirements why have HMRC not specified that payroll systems have checks built in to prevent potential underpayments arising from certain codes.
Can anyone explain why payroll systems are written to allow this?
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