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HMRC refusng to code out small underpayment

HMRC refusng to code out small underpayment

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Our client ran a week 56 payroll which has left all their staff owing 4 weeks underpaid tax for the year.

HMRC have issued letters saying that they will not code out the underpayment as this would deduct more than 50% of the employees' wages.

This is obviously wrong but when we challenge HMRC about it they refuse to alter it.

Has anybody else come acroos this?

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By nogammonsinanundoubledgame
24th Jun 2013 11:24

Similar but not identical problem

*IF* the coding notice *WERE* to give rise to deductions in excess of 50% of gross then HMRC would certainly have a point.  I don't see enough information in the OP to verify or challenge that conclusion, and assume that you have done the sums.  If it comes out at less than 50% then I think that you can go back to them and correct their calculations.

In *OUR* experience we usually encounter a more sinister objection: that the coding adjustment would result in more than double the amount of tax being collected at source, a fact which we are happy to agree but the relevance of which (provided that the adjusted figure remains under 50% of gross) eludes us.

The problem with our cases is that there is very definitely an instruction in HMRC manuals forbidding PAYE collection where it more than doubles the tax, notwithstanding that there is NOTHING in the PAYE regulations that support such an objection.  But given that it is in black and white in HMRC manuals the low level monkeys with whom we come into contact are understandably intransigent.

Does anyone else know if there have been representations to get this policy overturned, and has there been an outcome?  I gather that the PAYE collection process is discretionary, which makes objections rather difficult to enforce.

With kind regards

Clint Westwood

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Replying to neiltonks:
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By ajkidd
24th Jun 2013 11:36

The amounts involved are less than £150 so it would only be less than £12 additional tax for each 4 weekly period.

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By billgilcom
24th Jun 2013 20:51

Paye 12070

You can read HMRC's manual in relation to this aspect by following the link below but the salient comments are as follows:-  

You should not attempt to code underpayments of income tax where

The individual does not receive sufficient income from the source against which the underpayment is to be codedThe individual’s liability would be doubled - twice as much income tax would be deductedThe 50 per cent K code limit would be exceeded.

http://www.hmrc.gov.uk/manuals/pommanual/PAYE12070.htm If you look below the above extract on the website you will also see that they suggest that you [they] might collect it by means of a voluntary payment. The term voluntary in its normal meaning is that you have a choice and in the circumstances it might be suggested to HMRC that if they will not voluntarily code it out for each employee then the employee will not voluntarily make payment of the amount so that it will stay unpaid for as long as there is a stalemate. I would suggest that it would in the long run be cheaper for them to code the underpayments out as opposed to having to make an assessment (that would probably in truth cost them more than the underpayment) and then go into the collection system. Surely this is the type of "jobsworth" attitude that HMRC should be getting rid of when it is making false noises about simplification. Its always the same - go for the wee man and let the large money bags and companys do what they want. Perhaps a complaint might see common sense applied   You might have to watch that you do not force them to make assessments (and I am not convinced that a form P800 is an assessment) as then interest would run on the unpaid tax which inevitably for the time being as long as there is a stalemate is an interest free loan from the HMRC

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By julian.sims
25th Jun 2013 12:47

Double tax issue

I have seen the same problem recently and it can affect the 'standard salary' director/shareholder of an OMB as well.  Without underpayment PAYE is probably nil, therefore any change in code will more than double the normal deduction.

I wonder if HMRC software is picking this up is a way it would not have done historically.  In any case, they cannot be sure as they are having to guess/estimate what employees earnings are actually going to be during the year.

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By nogammonsinanundoubledgame
25th Jun 2013 12:58

Billgilcom has very kindly ...

... provided the link to the criteria to which I alluded in my post above.  I was just being lazy.

My earlier point remains salient:  These qualifying criteria seem to have been dreamt up by HMRC without parliamentary or judicial oversight (as far as I can tell).  As a general principle, it is not the job of HMRC to make up rules as it goes along, but enforce rules which have been imposed upon them by their political masters.  Certainly their political masters may commission HMRC to advise them, but ultimately it is those masters who should be setting the rules.

With the exception of the second bullet point I tend to the view that the qualifying criteria are reasonable.  But that second bullet point is not.

I am interested in the views of readers as to whether there might be a case for enforcing that this point be disregarded (ie HMRC's general obligation to treat taxpayers fairly as one against another).  Not that I imagine anyone would countenance running up the chargeable time pursuing it given that the tax will be payable anyway at some point.

With kind regards

Clint Westwood

 

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By julian.sims
25th Jun 2013 13:53

PAYE Regs

Now prompted to look at the PAYE regs and see what matters are defined as relevant to determining the Code - at Reg 14 and then on interaction with Self-Assessment at Regs 185-188.

Clearly the 50% maximum deduction for PAYE is set in the definition of the 'overriding limit' at Reg 2 and the maximum for coding out is set at Reg 186.

Beyond this, it seems that the qualifying criteria applied by HMRC do appear to be just a matter of policy.

Of course if HMRC will not change view, only alternative is a formal objection to code under Reg 18 and then an appeal to the Tribunal.  Not the most effective approach as year will probably be ended when case comes for hearing.  Wonder if anyone has experience of this formal process?

 

Just spotted at Reg 14B that HMRC can only include adjustment for High Income Child Benefit Charge in code if t/p does not object.  I read this as giving t/p ability to prevent HMRC doing so, if they want to deal with through self-assessment and get the cashflow benefit.

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By Healthpay
01st Jul 2013 12:29

A glorious opportunity....

...... seems like a glorious opportunity for everybody to be changed to monthly pay where these things are less likely to happen!

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