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Redundancy and RTI - a warning

Large one-off payment in Month 1 leads to K code!

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My daughter was made redundant in early April. In Month 1 she received a combination of salary, holiday pay and pay in lieu of notice totalling around £11,500 all of which was subject to PAYE. She was fortunate to get a new job very quicly and recently received a new coding notice withdrawing her personal allowance and putting her on a K code to recover an alledged underpayment for Month 1. The Revenue computer had obviously assumed she was going to get £11,500 every month for the rest of the year. Despite going to her personal tax account and amending her expected income from her new job from £192K to the actual £32K, the account still showed her estimate income for 2019-20 as £173K and an expected tax bill of £63K!

Fortunately (and to my great surprise) a telephone call from her managed to get the code back to a normal 1250L although no explanation could be given as to why all this happened other that 'there was a systems error' which is still showing her as having a large income!

Is this a widespread problem?

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RLI
By lionofludesch
24th May 2019 10:01

Yes - well, as widespread as having a huge wedge of pay in Month 1. Which is not very often, really.

That's computers for you, I'm afraid. They don't think.

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By SXGuy
24th May 2019 10:09

Widespread problem.? If the problem is her wageslip showed nearly 12k in 1 month then no its not a problem. Its how it would work.

The problem lies with the employer.

And by that I mean redundancy has a 30k tax free allowance, so putting it on her wageslip as normal pay would result in a tax code change.

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Replying to SXGuy:
RLI
By lionofludesch
24th May 2019 10:17

OP says the payment was for salary, holiday pay and pay in lieu of notice.

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Replying to SXGuy:
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By Tax Dragon
24th May 2019 10:22

SXGuy wrote:

Redundancy has a 30k tax free allowance.

I promise you you will find no such allowance anywhere in tax legislation.

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Replying to SXGuy:
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By chicken farmer
24th May 2019 10:24

The redundancy pay was dealt with correctly as a non-taxable item. I think the problem lies within the Revenue's computer (or rather the lack of any 'sanity check'.

The problem was that she was placed on a K code which would have denied her any personal allowance and increased her taxable pay from the new employer by a notional £1669 per year.

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Replying to SXGuy:
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By Kaylee100
24th May 2019 10:53

The payslip only showed taxable part. Its just HMRC computers think this employee has landed themselves a role as a brain surgeon and will be on the same money for months 2 to 12.

The computers (in some cases) react so fast to the submitted data theres no chance of them seeing its a one off.

Same with my daughters. Every HMRC agent weve spoken to can see the error (double counting) but because it was submitted RTI they cant change it.

Need a RTI box to tick for unusual circumstances!

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Replying to Kaylee100:
By SteLacca
24th May 2019 12:29

Kaylee100 wrote:

The computers (in some cases) react so fast to the submitted data theres no chance of them seeing its a one off.

That may be true of most computers, but sadly, not HMRC computers. Their computers take the view that real time means some point in the next two or three weeks.

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By Kaylee100
24th May 2019 10:13

They do have in year assessments to keep codings as current as possible. They only use data they have. Computers sadly dont work on common sense.

My daughters employer made some RTI error last year 18/19 by doubling her salary received (and doubling allowances), so HMRC worked out she had underpaid tax in February 18/19 and immediately nobbled her 19/20 coding for £1000 underpaid tax.

Its all a nightmare as HMRC insist the employer must put it right. Employer has tried but HMRC have put their account into dispute as opposed to working on a resolution quickly. So shes currently stuck overpaying tax.

I think she's going to have to ask for it to be assessed for 18/19 on paper so we can appeal and release the adjustment from her current coding. She had hoped it would be sorted for May pay but doesn't appear to have been

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RLI
By lionofludesch
24th May 2019 10:20

All these problems will be a thing of the past when MTD begins for direct taxes. ©

HMRC will simply crosscheck the payroll records to the business accounting records.

Life will be a doddle.

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By neiltonks
24th May 2019 12:07

This happens quite a lot, and all year not just in period 1.

The system which re-evaluates tax codes does this to try and avoid scenarios where a person earns enough to get a personal allowance reduction for the first time and since this isn't reflected in their tax code, they underpay tax in that year. This is a laudable aim but it seems a blunt instrument and probably causes more problems than it solves because it can't cope with payments which are, for whatever reason, not typical.

A couple of solutions spring to mind. They could have an 'atypical payment' flag on the FPS which caused the pay for that period to only be added in once when calculating the expected pay. That would fix the OP's problem and also prevent annual bonus payments causing the same issue (which they sometimes do).

That would need a change to the FPS, though, and would take time. More immediately, they could simply not do the expected pay calculation at all when the FPS is flagged as a leaver, because there's actually no point in assuming the same pay rate for the rest of the tax year when you've already been told this is the last payment the employer will ever make!

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