HMRC recipe for debt disaster

Norman Younger
Maximiti Limited
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I recently joined millions of good citizens and submitted my tax return. On it was a 5 figure sum for gift aid, something normally done through my company, but this year was done partly in my own name. Very nice , I hear you say. Indeed so. Imagine my surprise to receive an amended coding for my PAYE for 2012/13  which gives me relief for gift aid of the same amount of 2011/12. I shall ignore it becuase it is piffle , But it got me thinking.

How many people would have failed to realise the significance of the error and ended up with a hefty amount of tax owing in 12 months time?

It would also get any wages department wondering about my personal finances , something I reckon most employees would not be too keen on

But 2 questions remain - how on earth can HMRC make such an assumption ? How can their computer let such a large code loose into the wilds?

Cetainly not helping the Treasury's cash flow!

About Norman Younger

Accountancy practice brokerCommercial mediator & negotiatorBoutique business broker & corporate financier 25+ years professional experience, charity trustee and community worker with a broad (but not-always "PC") view of the country's financial, business, political and social problems. Tel: 0800 2800 321. Follow my personal Google+ page


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06th Aug 2012 16:26

had a case this morning...

ex client (now out of SA)....but underpaid by 2K....had 1 new draw down pension plus his ongoing annuity -  so they operated normal allowance on annuity, and allowance plus additional age allowance less state pension on other pension...go figure!?


They assure me things are corrected for current year....which i am sure my ex client will be over the moon about.


I have seen similar with employee expense claims given credit in a PAYE code....(and more frequently an adjustment for rental income) - but there is a potentially large variance in these from year to year so it does beg the questions


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to SteLacca
06th Aug 2012 16:43

Begging the question

I will instruct my wages department to ignore the notice of coding because I am the boss but even if I had noticed the error and I was a humble employee in somebody else's business , I doubt the wages people would listen to me. So I would have to write to HMRC and open a bank account to put the money away to be able to repay them without losing my code altogether in the next year.The number of actions required just mounts up. Multiply these issues across the taxpayer base and it's no surprise that HMRC is in such a mess

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to acornaccounts
07th Aug 2012 09:27

Ignoring Notice of Coding

I thought that codings came through electronically these days so it is not possible to ignore.  You may be the boss, but in most cases payroll depts can't just change codings on the say so of employees - they have to act on the codings provided by HMRC and it is up to the employee to get the HMRC to change the coding.

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to Portia Nina Levin
09th Aug 2012 11:56

Ignoring notice of coding

CEL wrote:

I thought that codings came through electronically these days so it is not possible to ignore.  You may be the boss, but in most cases payroll depts can't just change codings on the say so of employees - they have to act on the codings provided by HMRC and it is up to the employee to get the HMRC to change the coding.


You are quite right.  The actual tax in the payroll won't change until the employer gets a notice.   We had instances of employees getting letters every month.  But until the employer gets them,  the code won't change.   


Of course,  it is correct to query with HMRC still.    

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06th Aug 2012 16:50

Maybe you entered the Gift Aid

.... into Box 5 (Gift Aid payment) instead of Box 6 (one-off Gift Aid payments).

If you use box 5 then HMRC will automatically include it in your tax code.

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06th Aug 2012 18:23

Gift Aid

Not as far as I know . I haven't got it handy to check.

In any event , I find it bizarre that they ask whether a totally discretionary expense such as this can be expected to recur. A professional subscription I understand.

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06th Aug 2012 19:00

Some clients give the same gift aid year on year,

They are quite often the ones given to churches, or religious organisations. If they do change, they tend to increase, so the tax  code maybe isn't spot on but is closer than no change at all. It's the same with tax code changes for P11D's, and payments on account. They are all determined by the previous years figures.

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07th Aug 2012 08:44


2 years ago both myself and my wife declared company cars on the tax returns and advised HMRC that they had been relinquished at the end of the tax year. Nonetheless the following year we BOTH had codes showing that we still had a company car each.

Again, more letters back and forth .


Clearly it is inefficient

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07th Aug 2012 08:54

I doubt anyone will disagree

A client that retired earlier this year must have received about 15 tax code notices for the 2011/12 tax year, and another 20 for the 2012/13 tax year, all in separate envelopes, many received the same day.

Contradictory notices often received on the same day, too.

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07th Aug 2012 10:13


We still get them by snail mail

To me it seems eminently sensible to advise a PAYE department of an error especially  if it means paying more tax - who's going to get a ticking off ?

I don't know if there is a better way , I haven't given it any thought

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07th Aug 2012 10:22

It just complicates matters to have different codes

..... at different locations... and if an employer adjusted the code incorrectly it could lead to an escalation of the problems.

Just advise HMRC that the Gift Aid was a one-off and they will adjust the code.

Your company may be above board, but imagine what a corrupt employer could do if they were allowed to adjust tax codes indiscriminately without repercussion or consequence.

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to cheekychappy
07th Aug 2012 13:54

Different codes

Why not simply give everyone either the whole allowance or no allowance , say for second job ?

Then at the year end it gets adjusted by means of a refund to taxpayer or payment to HMRC

Why not trial it with 10,000 taxpayers and see how they like it ?

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By Old Greying Accountant
07th Aug 2012 13:28

I get electronic codings ...

... but I have my system set to ask me before processing them.

However, I don't think ignoring them is good, I may hold processing whilst I query them and get amended if needed, - unless (as in your case) it is your own code.

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07th Aug 2012 14:21

You can (partly)

Just tick the box on the tax return that says you do not want your o/s tax liability to be taken via your tax code.

I think most people would want their tax code to reflect the true position as accurately as possible. Not everyone is in a position to pay extra tax during the year, and make a claim for a refund, or pay less tax during the year but have to make a lump sum payment later. By using, and adjusting, tax codes the difference is kept to a minimum (hopefully).

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07th Aug 2012 16:21

Tax codes

Is it ismpler to give blanket allowances to everybody in each job , as long as they only use it any any one job, and at the year end submit a return. The lack of universality of a tax return must cause a tremendous amoutn of leakage.

In USA everybody must submit a return, which for most people is simply their equivalent of a P60 declaration but it has to be done. Hence the rise of the likes of HR Block - pile it high and sell it cheap, it is a few minutes work in most cases so they can offer it for a knockdown price , say $50 .

Aha , I hear you argue , here is a man who goes mad with extra red tape advocating an increase.

Not so , my dear readers .  I reckon that overall it will be more effiicent for everybody especially if it eliminates all the to and for with wrong codes

Like I said , try it on 10,000 taxpayers and see

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07th Aug 2012 16:58

Good for accountants, but not for taxpayers.

The majority of people have one job, and the P35 gives HMRC all the information they need.

Even professionals make mistakes on tax returns (occasionally), so forcing everyone to do a return would not help, except to create more problems.

Go try it on 10,000 taxpayers and see the mess they make!

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08th Aug 2012 09:04

Taxpayer trial

That's exactly why I said a trial . I think however , that it is a cultural issue , getting used to filing a tax return. More people do it since self-assessment . The vast majority of returns would be straightforward but it would form a mechanism for making one-off payments either way and I suspect it would make people understand the cost of a benefit in kind or the value of claiming allowable expenses that are employment related.

Does anybody out there know if the US system works smoothly and accurately ?

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to Duhamel
09th Aug 2012 12:32

US system

Flying Scotsman wrote:

Does anybody out there know if the US system works smoothly and accurately ?

During my time in the US both the Federal and State (NJ & NY) tax systems work very well.


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10th Aug 2012 09:50

UK and US tax

I am going out there in a couple of weeks, must ask the locals how they find it

I suspect they don't know any better and it's just another annual ritual

One hting I do know , and that is that tax evasion is a very very serious matter out there


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to tom123
10th Aug 2012 11:15

Tax evasion

Flying Scotsman wrote:

One hting I do know , and that is that tax evasion is a very very serious matter out there

It is very much a "Cash is King" society for two reasons. It evades tax and avoids the charges on using checks (sp!) and plastic. Unless you are talking about the super rich off-shore funds of course.



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10th Aug 2012 11:30

Cash is king

Most governments are desperate to abolish cash and non more so than in the UK . The funny thing is that cash machines are mutiplying like rabbits and they BOE is happy for more fivers to be dispensed. I think cahs will be around for a long time yet unless it is actually abolished by legislation. Could it happen ?

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By gryalls
13th Aug 2012 16:40

On the crude definition that a currency is anything that is acceptable, the government might be able to stop the printing presses but would find it hard to stop people using sea-shells, sacks of rice, or even US dollars.

Remember that in many parts of the world, the USD is common currency if only because the local paper is so worthless.

Another thought (by now way off topic) is that while Bank of England notes may be declared illegal, I am not sure that Westminster has the authority to stop Scottish banks continuing to provide cash.

I wouldn't worry about it. Cash will be around as long as people want to trade.

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