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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..
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.
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?
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!
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.
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"?
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.
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.