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"Within year" adjustments to tax code for est. tax

Amended tax codes for adjustments for estimated tax owed this year - can these be challenged

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I am seeing more and more situations where HMRC are issuing revised tax codes once a tax return has gone in (ie adjusted tax code for 18/19 after the 17/18 tax return has gone in) to try and collect tax earlier. Including "adjustment for estimated tax you owe this year"and estimates of Property Income, dividends etc..

Does the tax payer have to accept these adjustments or can they request that these adjustments are removed from the tax code so everything gets sorted via the SATR and any tax due paid either by the following January as a balancing charge or via the traditional payments on account.

Is it the tax payers choice or can HMRC insist. Has there been some change in the law that is causing all these adjustments because its an absolute pain trying to explain it all to clients who generally just glaze over (I know the feeling)


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20th Dec 2018 17:50

I have been pulling them out.

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By Matrix
20th Dec 2018 18:00

Just call the agent helpline and get them removed if the client prefers to make POAs.

You can also untick the box for tax to be collected through PAYE on the tax return.

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20th Dec 2018 18:37

Just beware - some clients like it. They don't like to pay a big chunk on 31 Jan.

But it's their choice, not HMRC's.

I'd always have an eye on how much was being taken and the costs of my time. It is, after all, merely a timing difference. What they don't pay now, they'll pay later and they need to know that.

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20th Dec 2018 20:45

Of course they can be challenged. Take the example of a director taking no salary, who decides in October to take a salary just below the PT. HMRC will issue a punitive tax code on the basis of the catchup payment in October, assuming that they will now be earning a bucket load of cash via salary.

HMRC assumptions are not legally binding.

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22nd Dec 2018 16:00

Phoned HMRC to get one removed. CSO said he would but he couldn’t guarantee that it would not be automatically reinstated. Only a small amount involved so left it to sort on the ITR.

Another case which I didn’t see till P60 time was a £15K income client being ‘assessed’ on income in excess of £100K for no reason HMRC could identify.

And no he didn’t have a lotto ticket in the van.

Happy Christmas all.

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to Open all hours
22nd Dec 2018 16:12

Lotto winnings aren't taxable.

Just saying.

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to Open all hours
22nd Dec 2018 21:47

Director taking a balloon payment?

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By Mallock
28th Dec 2018 10:51

The one that annoys and worries me the most is where a client makes a large one-off pension payment and HMRC assume he is going to pay the same next year and amends his tax code. If the client isn't diligent we may not find out until he has had tax relief he is not due for 6 months or more.

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By ChrisKH
28th Dec 2018 11:03

I can only say you are lucky then, as in my experience HMRC never adjust tax codes to reflect current and future year income changes, even where these changes are frequent and regular (e.g. consistent payment of annual bonuses and annual increases in salary) unless you bring this to their attention and give them specific directions on what changes to make in the tax code. Even then, it's touch and go.

Of late, I have taken to changing the PAYE income projections found online and notifying them of new income streams the same way, since they no longer appear to be prompted by letters or comments made in the Tax Returns.

Where taxpayers are mainly PAYE, as some have said, they may not want to have large balancing payments as at 31st January, myself included. And it's not just a timing difference; most folk under PAYE quite reasonably expect to pay the majority of their tax in the tax year, not after the event. If they can't, then the system isn't really fit for purpose.

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By raycad
to ChrisKH
28th Dec 2018 13:13

"I can only say you are lucky then, as in my experience HMRC never adjust tax codes to reflect current and future year income changes, even where these changes are frequent and regular …."

Well, I can only say that, somehow or other, "dynamic" coding, as it is called, must have passed you by. This has been around for the whole of this tax year and most of the last one. HMRC claim to use RTI information for this purpose and they kind of do but its very crude and simplistic, as well as being erratically timed.

One of my clients made a one-off SIPP withdrawal in May and nothing happened until the 17-18 SATR went in earlier this month. Their computer then issued a revised tax code assuming that the pension for the YTD was going to be way, way higher than it is planned to be. Accordingly they then made an adjustment to the in-year code which tried to collect the supposed u/p for the CY over the next three months. (Even though that would exceed his regular SIPP!)

The regular monthly SIPP was even shown in a "drill-down" online document but the Artificial Intelligence programme that HMRC use isn't configured to be "smart" at all. It still took the annualised YTD figure as the tax year projection.

What I have learnt from this and similar cases is that it is not the in-year RTI figures themselves that trigger the amended tax code (otherwise the client in my example would have had his code changed in the summer) but, rather, the processing of the tax return, which seems to trigger the tax code review. Were it not for the impact on fee income it would be tempting to delay the submission of all returns until January!

It is in the PAYE regulations that HMRC can pretty well include any adjustment they wish in a PAYE tax code. But, as other posters have said, their internal guidelines are to go along with any objections raised. It just puts the onus on our side (along with the accompanying time costs!)

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28th Dec 2018 12:01

When we get our agent dashboard we will able to do this much more quickly and deal with the problems above.

As usual HMRC dont have the facility to realise that there is a lot of work that its staff get involved in putting right cockups at HMRC assumtions by its computer etc.

As the amount of work is increasing no doubt we will need to find a way to deal with it efficiently. THe post works well

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to pauljohnston
31st Dec 2018 08:57

Wish we could fine them £100 for any error "careless", "No reasonable excuse"

Ah but one can but dream.

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28th Dec 2018 12:57

All this will be a thing of the past when MTD starts.©

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By Moo
03rd Jan 2019 15:52

I think that most of these adjustments are a result of the move to 'dynamic coding' which has been covered in AWeb articles in the last 18 months. The PAYE code amendment is caused by various triggers and one of these is the filing of a tax return.
Like many things introduced by HMRC in the last few years this seems to be subject to a number of teething issues and HMRC are aware that it is throwing up anomalous results which is why they are eager to remove any offending adjustments when challenged.
In my own case for 2018/19 the revised code was seeking to recover tax on my state pension and dividend income through PAYE 'in year' despite my having X'ed box 3 on page TR6 of my 2017/18 return and it also failed to take into account the substantial payments on account due for 2018/19 in January and July 2019. Effectively trying to collect the same tax twice.
Admittedly it would come out in the wash when the next return went in but in the meantime I would have been several grand out of pocket and unable to pay for my February trip to the sun.

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By Moo
03rd Jan 2019 16:15

A more dangerous and insidious development with 'in year' adjustments on PAYE codes which I have encountered on a couple of clients this year are where 'in year' adjustments on their 2017/18 PAYE codes have been displayed in the online agent information designed to help with the completion of the 2017/18 tax return as 'Underpaid tax for earlier year(s) included in your tax code for this year:'
If entered on the return as described (box 7 TC1) it will actually mean duplicated tax which will not come out in the wash. HMRC are aware that this is an issue and an agent I spoke to this morning said that as far as they are aware it has only affected about 2,300 cases. Be that as it may 2 cases have come across my desk so far for 2017/18 and I am in a small firm so this may be a big underestimate.
In one example I picked up when preparing the return that it was misdescribed by HMRC and not an actual b/f liability so did not adjust the return - HMRC then issued a system generated incorrect 'correction' to our calculation which they conceded when challenged was wrong and reverted to the figures we had filed.
In the second example we prepared and filed the return based on the HMRC website information and only picked up by chance several months later that the liability had been overstated by several hundred pounds. Again when challenged HMRC conceded their information was incorrect and amended the figures. Would they have found the error anyway at some point? I doubt it.

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to Moo
04th Jan 2019 00:13

With regards to the HMRC "Information to help you complete your Tax Return", I learned some time ago not to take it at face value. Even state pension figures should be verified against client information, though admittedly, HMRC figures in this should be accurate.

I will certainly not trust underpayment information without verifying it against other information sources.

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to SteLacca
04th Jan 2019 07:15

We ignore it.

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