Why does HMRC send PAYE codes in January?

Members of AccountingWEB's Working Together eGroup have started a thread questioning HMRC's timetable for sending out new tax codes.

The Pay As You Earn (PAYE) coding notices (P2 forms) – which explain how a person’s tax code is calculated and tells employers or pension providers what tax-free income, if any, a taxpayer is entitled to and how much tax to deduct from their income before paying them – are sent to individuals ahead of the new tax year starts in April. The problem for advisers is that many of them - often containing discrepancies that need to be resolved - start arriving during January, as the Self Assessment online filing rush builds to a peak on the 31st.

One member of the AccountingWEB Working Together eGroup who works with a tax charity reported being "inundated with crys for help", often for problems that did not need to be sorted out before 31 January. As most codings are electronically received, corrections could be made much later in the year, they argued.

In a note to tax advisers HMRC said it planned to issue 17m-18m tax code notices between January and March – a similar amount to the previous year. Those who have more than one P2 coding notices (about 4% of all taxpayers) will receive them in the same envelope, the tax department said.

The taxman is encouraging employers to sign up to receive P9 and P6 forms – tax codes for employees – electronically rather than on paper. Tax advisers can now check their clients’ PAYE tax codes online, although one participant in the Working Group thread complained that a code dispatched to a client was not showing up in their online portal.

Other evidence during the month suggested that the backlog of PAYE code reconciliations that caused havoc for taxpayers and advisers in 2010 was still working its way through the system. The  TaxCalc survey  about support for Self-Assessment tax during January found that 7% of support calls were about incorrect PAYE codes.