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Paying tax by tax code change

Can HMRC refuse to adjust tax code chnage to collect tax ?

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Got a client who earns just over £13K on payroll. And a tax bill for £800. We elected to pay via tax code change, but just got a bill payable on 31.1.20. I called HMRC to get it mended and she said 'they had a few like that' but then went away for quite a while, and came back and said they can't mend it because client isnt earning enough and the deductions would be too much for her to pay (!?). I explained that all they needed to do was knock 400 off the tax code. She was adamant that it can't be done, I asked but why a few times, and she said she wouldnt discuss it any further and the whole £800 has to be paid in January, and promptly hung up. Is there also some lower limit for low earners being able to pay via a tax code change ? Or is it because they don't know the tax free allowance next year (it's staying at £12.5K isnt it ?)     

Replies (11)

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By Tim Vane
13th Dec 2019 10:15

HMRC might be correct if the monthly deduction will be over the regulatory limit, which it sounds like it could be in that situation.

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Replying to Tim Vane:
By kenny achampong
13th Dec 2019 11:58

She did kind of say that, the monthly deduction would be £66 per month, and that would be 'too much for her to pay', but that's hardly anything, some people will be paying upto £250 per month. And I said that's a lot better than a low earner with 2 kids finding £800 by January, so wasnt sure what she meant. Maybe there's a calculation based on what percentage of the total tax bill it is. But where is that written down I wonder ? How do we know who can pay by tax code change and who can't ?

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By Rammstein1
13th Dec 2019 11:14

They have a weird system where they cannot collect underpaid tax for an earlier year through a tax code if your tax liability is less than that amount. So if you would have paid £500 tax through your tax coding, the maximum u/p that could be coded would be £500.

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Replying to Rammstein1:
By kenny achampong
13th Dec 2019 11:51

Oh. So in her case, because the tax liability in 2020-21 might be less than £800, they don't think they can collect the £800 ? Still not sure I actually understand it, maybe that's why the HMRC woman couldnt explain it and jumped ship. I'm not wrong am I....if they just reduced her code to 850L, wouldnt that work out OK ?

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By NYB
13th Dec 2019 11:34

We have the complete opposite. Every client with dividends, where the "dont collect tax through tax code" box has been ticked within 24 hours of submission of the SA get an amended tax code coding it in resulting in a K code. swear its done on purpose

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By K81
13th Dec 2019 12:11

HMRC system won't allow them to more than double the normal tax liability, so if her PAYE tax is less than £800 then basically - computer says no.

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Replying to K81:
By kenny achampong
13th Dec 2019 12:43

Thanks, I see now, so in her case, if she was earning £16.5K, tax = £800, they would allow it, any less than that, they don't. Strange that I've not come across that before after all these years and the software doesnt flag it up. And seems very unfair on low earners, although I presume the BPS team will be ok about setting up a direct debit.

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By Not Anonymous
13th Dec 2019 14:25

"and the software doesnt flag it up"

Aren't you expecting a lot from your software there?

How would it know what HMRC are going to estimate the clients tax code/income to be in advance of their annual tax code process in January/February?

And by then you have missed the boat for the tax to be collected through the following years tax code anyway.

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Replying to Not Anonymous:
By kenny achampong
13th Dec 2019 16:13

Eh ? The HMRC software has calculated it. And this doesnt involve any estimated tax codes, or any tax code process in Jan/Feb. I'm not sure you've understood the issue.

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By Not Anonymous
13th Dec 2019 17:37

I can assure you I have understood it.

You want the Self Assessment liability due for 2018/19 to be included in your clients 2020/21 tax code.

HMRC won't do that that for the reason given by K81.

You then said

"Strange that I've not come across that before after all these years and the software doesnt flag it up".

Can you explain how you expect your software to flag up the fact that the tax liability for the previous tax year cannot be collected in the forthcoming tax year?

I know software is sophisticated these days but not sure it's that clever.

What information about your clients expected income in 2020/21 is your software using?

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Replying to Not Anonymous:
By kenny achampong
16th Dec 2019 14:20

I get your point, and when the tax return was filed in May, nobody knew how much the income/tax might be in 2020-21. But by December, I'm guessing their computer used the RTI figure to estimate 2020-21 income/tax. So in circumstances like this, it makes it impossible to advise about how the tax needs to be paid. And lower earners lose the option to take advantage of using the tax code change. And I still don't get why they do it.

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