PAYE coding issue

PAYE coding issue

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I have a client with PAYE earnings near to the higher rate threshold who is also a partner in a partnership from which she has an annual partnership share, so she is in SA and submits returns.  The pension contributions will achieve tax relief at higher rate.

She has paid pension contributions in the past which HMRC have not coded in.  Following the submission of her 2012 tax return her code for 2012/13 has recently been changed to include the personal pension contributions, which will reduce the tax paid for 2012/13 (and for 2013/14 etc) and will probably result in a repayment of PAYE.

I think it would be better for her to maintain the tax deducted under PAYE to minimise the amount payable under SA, and she agrees, but HMRC will not agree to removal of the extension of her allowances as this would "knowingly ove-rtax" the client, which they are not allowed to do.

I would be interested to hear if anyone else has come across this situation and whether HMRC are correct to refuse the request to remove the relief from the coding.

Replies (4)

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By User deleted
05th Feb 2013 16:06

Why not ...

... tell HMRC that she's stopped paying pension contributions?

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By spuddle
05th Feb 2013 18:21

Yes - I guess that would work - just seems wrong that you would need to lie about something to get them to do as requested.

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By Shirley Martin
05th Feb 2013 18:39

Issue raised by Tax Faculty

I don't know whether HMRC are correct to refuse the request to remove the relief from the coding, but it is certainly their practice to do so.

The introduction of autocoding has brought this to the fore and, as a result, the Tax Faculty has been asking for feedback on the issue and refer to the fact that, so far as exclusion of items from the code is concerned, HMRC guidance refers to income only.

The Faculty's concern was that taxpayers could find themselves with a code containing a relief which may not be due and this could result in a tax underpayment at the year end.

Their request for feedback, and the background to the request, is here:

http://www.ion.icaew.com/TaxFaculty/26068

Kind regards

Shirley

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By spuddle
06th Feb 2013 09:54

Thanks Shirley.  I have

Thanks Shirley.  I have copied my issue there.

Simon

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