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AIA

Tax code errors could result in millions of surprise bills

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10th Feb 2015
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Up to three million people with more than one source of income may get backdated tax bills of £2,000 per year because of errors by HMRC.

Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension and pensioners with two pensions and those who have continued to work part-time after retirement, the Telegraph reported.

Problems arise because tax offices aren't sharing information about taxpayers’ incomes on a central database, the newspaper reported.

People with more than one income are being given their personal tax free allowance a number of time. Often the mistakes are discovered by HMRC years later, which causes unexpected tax demands.

HMRC told the Telegraph that the problem was not “systematic” and that the vast majority of tax codes are correct. But it said that millions of people have more than one code, so they could be affected.

Clive Stevens, the executive chairman of accountancy practice Reeves, said the error rate was “high”.

He said: “In my experience, up to three out of five PAYE codes that we see in our office are incorrect when first issued. In the worst cases, it has taken 10 attempts to get a correct code from HMRC.”

Payroll expert Kate Upcraft blogged that if people aren’t checking the code, as HMRC says, then "no one will raise a query" about their tax code.

"Does that mean the code is right – no it means the error hasn't been spotted, that’s not the same thing.”

AccountingWEB members had mixed views on how widespread errors in tax codes are and how they can be spotted. Petersaxton said: “If a client had an agent and had this problem it would be noticed when the tax return was prepared and the correct amount of tax would be requested.”

DMGbus has seen instances where a PAYE code has been issued to an employer but not to their employee and vice versa.

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Replies (8)

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By NYB
11th Feb 2015 12:08

Not my Failt Mate - HMRC Tax Codes
At a recent TaX Tribunal( previously reported on this site) fighting my corner on my one mistake in 20 years I made the comment to the HMRC Inspector that HMRC have made over 8 million errors on tax codes. He bit back with the comment this was Not HMRC''s fault but the fault of the taxpayer..

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By TaxAngel
11th Feb 2015 16:59

I thought RTI was supposed to stop this happening

"Problems arise because tax offices aren't sharing information about taxpayers’ incomes on a central database, the newspaper reported."  We were told the NPS system would mean different offices holding records was no longer relevant and RTI would prevent any errors that happened from continuing.  Lies lies and more lies.  The fact that most codes are correct doesn't help those who were unable to spot their codes were wrong. I have a client with an £18,000 tax underpayment for 2013/14 AND he queried the code and was assured it was correct.  Now tell me that it's the taxpayer's fault.  the sooner HMRC lives in the world the rest of us live in the better I will like it.

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Replying to JPK:
Wild Billy Hickok
By Wild Billy
11th Feb 2015 17:58

Oh no, not again

Same every year isn't it? Not really enough information to know whether it is HMRC's mistakes or information not provided. Bit disappointed that we aren't clued up enough to understand it isn't necessarily as simple as "errors made by HMRC" but then it's all par for the course around here. How the hell we expect the general public to understand the nuances of tax issues (such as avoidance vs evasion) when we can't even report them properly and show a deeper understanding then we have a bit of problem don't we? 

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By janefg
16th Feb 2015 12:39

2 Personal Allowances
While doing the 2014 Returns I had one case of a client who retired from the Local Authority (Education) at the end of August, started receiving a works pension in September and also started working part-time for the Local Authority in September. This resulted in both the part-time working and the pension payer picking up details from his P45 and both giving him a full personal allowance. To compound matters, he is a higher rate taxpayer but both of them treated him as paying tax at basic rates! He was not charmed when I told him how much tax he had to pay now as a result of these errors!

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By raybackler
16th Feb 2015 15:09

Not fit for purpose

The PAYE system, is designed for people with one source of income.  As soon as you bolt on another source of income then it goes haywire.  HMRC rely on tax payers phoning up to give them the correct information.  Some of the worst cases I have seen are the newly retired.

After relying on PAYE in one job up to retirement, they suddenly hit an untaxed state pension, sometimes multiple private pensions and maybe a part-time job.  The tax codes often take a couple of years to bottom out correctly.  What is more pensioners don't expect it, because they have had a working lifetime assuming PAYE works correctly.  They don't understand the apparently high tax on other income sources, because the state pension is untaxed.

As accountants, we complete the self assessment tax return for the previous year, with a few months left of the current year.  This inevitably means a week 1/month 1 tax coding in the current year to avoid wiping out all of their income.  Then in the next tax year they get arrears of tax added to their tax codes.  The year after that the tax codes should be correct, but that is the fourth year after retirement!!

For those not in self assessment, when HMRC eventually catch up with them, it is an unexpected nightmare.

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By ferncottage
17th Feb 2015 11:47

Beware - High Earners re codes

I have 2  high net worth clients. Despite HMRC knowing their income, Tax codes allowing Personal Allowances or assuming Pension Contributions will replicate previous years, despite the reduction in allowed amounts, and no longer allowing back contributions, have been issued. ESC A19 have been claimed. So watch this space. I suggest you check all earners over 110K and their codes. It is interesting to note that none of my Clients have yet to be issued with tax Codes for 2015-16. I wonder if HMRC are aware of this problem and are awaiting outcome of ESC A19 claims. May be this is why the "Tax Take" for IT is down on the HMRC Target. And "Who's Fault will that be"?  

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By Huw Williams
17th Feb 2015 12:46

Estimated income

This reflects my experience in dealing with a simple one-employment coding.  Income is substantially because it is now part-time and HMRC "know" this because of RTI, but are still coding for 2015-16 based on an estimated income which must have been worked out on 2013/14 income before the change.  And this despite having corrected the 2014-15 code to reflect a better income estimate.

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By raybackler
18th Feb 2015 09:24

2015/16 Tax Code

Just received one issued with deductions for expenses in 2015/16, where I had already sorted out the erroneous deduction in 2014/5, so the errors are being carried forward.  The expenses deduction arose from an automated tax code amendment from 2014/15 when a P11d was submitted.

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