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PAYE Coding vs Self Assessment Return

If HMRC code out tax via PAYE does the item need to be in self assessment calculation.

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I am finding more and more that HMRC are coding out items shown on self assessment return on the next PAYE (for those clients who have PAYE).

Often for company directors I have rung HMRC and asked them to remove their coding as it "cuts across" our salary set up. However, for those employed clients who have a side business or property we do not often get notifications of coding.

In two recent cases we have been claiming marraige allowance transfer for one employee with a side business. Last year HMRC coded the allowance into his PAYE.

In the other an employee with property is close to the (but not quite at) the 40% tax band. She makes private pension contributions and HMRC coded these and reduced her PAYE. Although this coding would appear to be incorrect in the circumstances.

In the first case, showing the MTA reduces his tax liabiltity on the SA but he has already received the allowance. Do we omit?

In the second case I am assuming the tax software (Taxfiler) will show the corrected tax and HMRC will adjust the code?

My concern is that I advise a client of their liability and HMRC change the figures which then affects my credibility with clients as well as not being certain about the tax due.

Anyone with the same issues?

Replies (16)

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By Paul Crowley
14th Jan 2022 12:00

HMRC is not connected. Staff are only taught on a need to know basis. Nothing is going to improve.
Coding is electronic and inconsistent
All that matters is that the overall tax is correct. How it is collected really does not matter

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Replying to Paul Crowley:
By SteveHa
14th Jan 2022 12:57

You got me all nostalgic now, remembering when different departments of HMRC talked to each other to ensure that everything was aligned.

Of course, that was a long time ago when staff in HMRC actually knew what they were doing.

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By JazzySasha
14th Jan 2022 12:19

You are confusing two separate matters.
A PAYE Code is simply a means of collecting tax from a taxpayer throughout the year. The code can (and often does) include estimates or incorrect entries and therefore will not collect the exact amount of the taxpayer's liability for the year.

The tax liability which shows when you have completed your client's tax return - which should include all relevant allowances such as marriage allowance transferred - should be accurate. Any amounts for prior year liabilities included in the client's PAYE code need to be shown in the relevant boxes on the tax return.

Any balancing payment due on 31 January simply represents the difference between the total tax liability for the year less any amounts already paid for that year (whether by PAYE or deduction at source or anything else).

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Replying to JazzySasha:
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By D V Fields
14th Jan 2022 19:10

Well explained.

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By Not Anonymous
14th Jan 2022 12:31

JazzySasha's post says it all really.

You seem to have a basic misunderstanding of how personal tax works.

A tax code is simply a provisional attempt to collect the correct amount of tax.

Things change during the (tax) year so what seems correct at one point in time, often the Jan/Feb before the tax year even starts, when HMRC calculate the first tax code for the year, is not necessarily going to be correct at the end of the year.

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By gillybean04
14th Jan 2022 12:58

In your first case, the client has already received the benefit of the MAT due to the entry in his code. This will be accounted for in the tax deducted from his employment income. But the calculation needs to take account of it too, which is why it also needs to be shown on the calculation.

For the second...they'll probably be working from a previous years information (income and pension contributions). Client can avoid it reoccurring by asking them to remove the contributions entirely (so they'll be relieved by her return, not her code), or providing correct figures at the start of each tax year (so the return matches the code).

Not sure what year's code you think HMRC would change, but once a tax year is over the tax code for that year is strictly "information purposes only". It takes no part in the calculation of income tax liability.

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Replying to gillybean04:
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By Hugo Fair
14th Jan 2022 13:36

Quite.
A tax code is not part of the final calculation of an individual's tax due/paid for a year - it is merely an operational tool (based on an 'educated guess' of the taxpayer's situation) that is used within PAYE to collect tax that approximates to what is due on a specified source of earnings.

However HMRC's knowledge of the taxpayer's situation is as about imperfect as their ability to connect information held in different silos ... so the educated guess is unlikely to be the final word in achieving overall accuracy for the taxpayer.

And you *always* do any calculation at year-end without reference to a tax-code - because, as gillybean hints, it has by then passed it's sell-by date.

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By rmillaree
14th Jan 2022 15:37

"In two recent cases we have been claiming marraige allowance transfer for one employee with a side business. Last year HMRC coded the allowance into his PAYE."

HMRC to te best of my knowledge will only code in marriage transfer if someone asks them to do that - so hmrc will never be the guilty party in tis regard they just follow specific instructions from agents or individuals - there is a slight danger if you or individual are not precise when having discussions with hmrc they presume thats what you are asking them to do - i always specify - do marriage transfer for that year only or do for thsi year and that year only or do from that year on ongoing basis till further note - so clear communication of exactly what you want is vital. Following this plan i have never seen hmrc bring in marriage transfer request on coding without being asked.

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By rmillaree
14th Jan 2022 15:44

" However, for those employed clients who have a side business or property we do not often get notifications of coding."

Are you saying hmrc are coding potential property income when you dont want that to be the case.

If you tick the approrpiate box on the tax return hgmrc will not (normally!) code out potential property income streams so that really shouldnt be an issue.

I would agree with you with regard to adjustments for potential pension relief at 40% being included in the tax code - yes that can be a big issue - and i am not aware of an easy solution (is anyone else?). all i would say is that for such clients i tell them the dangers of not checking their tax codes and flagging up to us any adjustments they see. Ideally put this caveat in bold when you draft their tax returns calcs with pension payments included and your back is covered when they come back in 12 months time and say thats not right that i have 2k to pay due to teh fact they didnt check their coding!

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By SXGuy
14th Jan 2022 17:48

I'm yet to find any tax return software that would assume your clients paye tax code.

They all operate on the assumption that it is a standard code.

Which therefore means that you have no choice but to input the MTA otherwise you'll find the software correctly calculates the tax wrong.

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By dmmarler
19th Jan 2022 11:50

You mean taxpayers still get Notices of Coding? I thought HMRC didn't bother with them anymore! I usually find the employee complains to payroll team their code has changed,and then the employee is sent away to try to get HMRC to tell them why.

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Morph
By kevinringer
19th Jan 2022 12:42

The PAYE coding can contain all sorts of nonsense. The SA TR must disclose the correct income/benefits/allowances regardless of what was or was not in the code. Clients are required to notify HMRC of the code is wrong and because years ago agents use to receive copies of coding notices, many clients still think we do and don't tell us when they receive a coding notice. I don't want my clients to have an incorrect code because it means they might get a big tax bill which I have to explain. I know which clients HMRC tend to make a pig's ear of the coding so I'll check those notices. Did you know that you can ask HMRC to set the manual coding flag so that HMRC's computers won't change the code? You can then speak to HMRC to agree a code and it will stay that way. I have that in place for a few clients.

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Replying to kevinringer:
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By rmillaree
19th Jan 2022 17:20

"Did you know that you can ask HMRC to set the manual coding flag so that HMRC's computers won't change the code?"
Thanks for that kevinringer - that will no doubt come in useful at some stage. Does that bar the dynamic coding nonsense from happering too for those clients ?

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Replying to rmillaree:
Morph
By kevinringer
19th Jan 2022 17:48

Yes it does (well, it has for the clients I have done it for).

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Replying to kevinringer:
By Paul D Utherone
19th Jan 2022 22:09

So do I, though it seems to have a habit of unsetting itself and autocoding again when a return goes in

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Replying to Paul D Utherone:
Morph
By kevinringer
20th Jan 2022 10:44

That's interesting Paul because it happened to one of my clients this year too. I asked the HMRC Agent Forum and they said that once a Return is submitted it should not reset the manual coding flag and that in my client's case the problem was human error. I'll need to keep a close eye on these.

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